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WALKER, FRANCIS A. Political Economy. 
By Francis A. Walker. New York : Henry Holt 
& Co., 1883. i2mo, pp. 490. (American Science 
Series, No. 5.) 

POLITICAL ECONOMY, By Francis A. 
Walker. New York: Henry Holt & Co., 1883, 
i2mo, pp. 490. (American Science Series, No. 5). 

POLITICAL ECONOMY. By Francis A. 
Walker. New York: Henry Holt & Co., 1883. 
i2mo, pp. 490. (American Science Series, No. 5), 



THE 



AMEPJCA?( SCIENCE SERIES 

FOR HIGH SCHOOLS AND COLLEGES. 



The principal objects of this series are to supply the lack — in some 
subjects very great — of autlioritative books whose principles are, so 
far as practicable, illustrated by familiar American facts, and also to 
supply the other laclc that the advance of Science perennially creates, 
of text-books which at least do not contradict the latest generaliza- 
tions. 

The volumes are large 12mo. 

The books arranged for are as follows. They systematically out- 
line the field of Science, as the term is usually employed with refer- 
ence to general education. Those marked * had been published up 
to February 1, 1883. 



I. Physics. 

By Arthur W. Wright, Pro- 
fessor in Yale College. 



II. Chemistry. 

By Samuel W. Johnson and 
William G. Mixter, Professors 
in Yale College. 

III. Astronomy.* 

B3' Simon NEWcojre, Supt. 
American Nautical Almanac, and 
Edward S. Holden, Professor 
in the United States Naval Ob- 
servatory. $3.50. 

IV. Geology. 

By Raphael Pumpelly, late 
Professor in Harvard University. 

V. Botany.* 

By C. E. Besset, Professor in 
the Iowa Agricultural College, 
;uul Lalo Lecturer in the Uni- 
versity of California. $3.75. 



II. Zoology.* 

B3' A. S. Packard, Jr., Pro- 
fessor of Zoology and Geology in 
Brown Universitj', Editor of the 
American Naturalist. $3. 



VII. The Human Body.* 

By H. New'ELL Martin, Pro- 
fessor in the Johns Hopkins 
University. $175. Copies with- 
out the Appendix on Reproduc- 
tion will be sent when specially 
ordered. 



7 III. Psychology. 

By William James, Professor 
in Harvard University. 

IX. Political Econotny.* 

By Francis A. Walker, Pro- 
fessor in Yale College. 

A'. Government. 

By Edwin L. Godkin, Editor 
of the Nation. 



HENRY HOLT & CO., Pfbltshers. NEW YORK. 



^ 



AMERICAN SCIENCE SERIES 7-', 



POLITICAL ECONOMY 



FEANCIS A. WALKEE 

AUTHOR OF 
'the wages question," "money," "money, trade and industry," etc 




/^\t>^' C'-'*'"*' *^' ^" "'■. 




NEW YORKi 
HENEY HOLT AND COMPAT^'Y 

1883 




v 



Copyright, 1883, 

BY 

Henry Holt & Co. 



V 




CONTENTS. 



PART I. 

PAGE. 

ClIARACTKR AND LOGICAL METHOD OF POLITICAL ECONOMY, . 1 



PAKT II. 

PRODUCTION. 

Chapter I. Land and Natural Agents, ... 33 

" n. Labor, 44 

" III, Capital: Its Origin AND Office, . . 62 
" rV. The Productive Capability op a Com- 
munity, ....... 71 



Chapter I. 


a 


II. 


a 


m. 


a 


IV. 


(( 


V. 


(( 


VI. 



PART III. 

EXCHANGE. 
The Theory op Value, . . . . .81 
Money and its Value, .... 124 
Money and its Value — Continued — 

Debased Coin : Seigniorage, . .150 
Inconvertible Paper Money, . . . 159 

Bank Money, 175 

The Reaction op Exchange upon Produc- 
tion, 181 



ii. CONTENTS. 

PART IV. 

DISTRIBUTION. 

Chapter I. The Parties to the Distribution of 

Wealth, 196 

" II. Rent, 203 

*• III. Interest, ....... 230 

♦* IV. Profits, 243 

" V. Wages, 259 

" VI. Some Minor Shares in Distribution, . . 288 



PART V. 

CONSUMPTION. 
Chapter I. Subsistence : Population, . . . 297 
" II. The Appearance of Economic Wants, . 812 
" in. Consumption : The Dynamics of Wealth, 819 



PART VI. 

SOME APPLICATIONS OF ECONOMICAL PRINCIPLES. 

Chapter I. Usury Laws, 336 

" II. The Banking Functions, .... 846 

" m. Industrial Co-operation, .... 853 
" rv. The Multiple or Tabular Standard of 

Value, 363 

" V. Trades-Ijnions and Strikes, ... 868 

" VI. The Doctrine of the Wage Fund, . . 377 

" VII. The Unearned Increment op Land, . . 385 

" Vni. Political Money, 398 

" IX. Bi-Metallism, 406 

*' X. Pauperism, ....... 417 

" XI. The Revenue of the State, ... 424 
"■ XII. The Principles of Taxation, . . ,439 

" Xni. Protection vs. Freedom of Production, . 461 

Index, 477 



POLITICAL ECONOMY. 



PART I. 

CHARACTER AND LOGICAL METHOD OF 
POLITICAL ECONOMY. 

1. What Political Economy is. — Political Economy, or 
Economics, is the name of that body of knowledge which 
relates to wealth. 

Political Economy has to do with no other subject, what- 
ever, than wealth. Especially should the student of econo- 
mics take care not to allow any purely political, ethical or 
social considerations to influence him in his investigations. 
All that he has, as an economist, to do is to find out how 
wealth is produced, exchanged, distributed and consumed. 
It will remain for the social philosopher, the moralist or the 
statesman, to decide how far the pursuit of Avealth, according 
to the laws discovered by the economist, should be subordin- 
ated to other, let us say, higher, considerations. The more 
strictly the several branches of enquiry are kept apai't, the 
better it will be for each and for all. * 

The economist may also be a social philosopher, a moralist, 
or a statesman, just as the mathematician may also be a 
chemist or a mechanician ; but not, on that account, should 
the several subjects of enquiry be confounded. 

2. Political Economy does not inculcate Love of Wealth. 
— Because political economy confines itself to discovering the 
laws of wealth, it has by some been called, derisively, the Gos- 
pel of Mammon. In reply to this sneer it would be enough 
to say that, while wealth is not the sole interest of mankind, 



3 POLITICAL ECONOMY. 

perhaps not the highest interest, it is yet of vast concern, of 
vital concern, to individuals and to communities. As such, it 
deserves to be studied. Now, if it is to be studied at all, it 
Avill best be studied by itself. The easiest and surest way to 
increase our knowledge of any subject is to isolate it, and in- 
vestigate it, to the strict exclusion, for the time, of all other 
subjects. 

But more may be said. Political Economy does not incul- 
cate love of wealth. It simply enquires how that passion, or 
propensity, in the degree in which it exists, does, in fact, in- 
fluence the actions of men. Political Economy has no quar- 
rel with jDassions or propensities which may, in a greater or 
less degree, supj)lant the love of wealth. It does not assume 
to sit in judgment on human conduct; it exercises no choice 
among human motives ; it simply undertakes to follow causes 
to their effects in one single department of human activity, 
viz., the iJursuit of wealth. 

3. So far from Political Economy ministering to greed, it 
would be easy to show that the study of Political Economy has 
tended, and tended very strongly, by showing how wealth is 
really best gained and kept, to banish a ravening, ferocious 
greed which seeks to snatch its objects of desire by brutal 
violence, at whatever cost of misery to others, and to replace 
this by an enlightened sense of self-interest, Avhich seeks its 
objects through exchanges that are mutuallj' beneficial, and 
which supports social order and international peace as the 
conditions of general well-being. 

Political Economy does not plant tlic love of wealth in hu- 
man minds. It finds it there, a strong, native passion, which, 
but for enlightened views as to the most effectual attainment 
of that object, is likely to break out into private rapine and 
public war. A little more than one hundred years ago, be- 
fore Adam Smith published his great work, Tlie Wealth of 
Nations, it was a maxim of public jjolicy almost unques- 
tioned in Europe, that only one party to trade could profit by 
a transaction, and that all which one party might gain, the 
other must lose. Out of this root grew wars and commer- 
cial restrictions which set man against man, and nation 



DEFINITIONS. 3 

against nation, making the intercourse of even the most civ- 
ilized states a game of deceit and violence. Adam Smith 
left the love of wealth, in human minds, not rebuked, but en- 
lightened. Little more than a century has elapsed, yet man- 
kind have made greater progress towards humane and mutu- 
ally advantageous international relations in that time than dur- 
ing all the other centuries of human history. 

4. But What is Wealth? — Economists have found much 
difficulty in defining Wealth; and not a few writers,* espe- 
tdally of late, have chosen to abandon the word altogether. 

Several of these have called Political Economy the Science 
of Exchanges. But the use of this term only removes the es- 
sential difficulty of the subject one stage further away. Ex- 
changes of what ? All human life, in society, is made up of 
exchanges, in word and act. The family relation, the neigh- 
borhood, the State, the Church, imply an unceasing exchange 
of sympathies, activities and incentives, only a portion of 
which are within the view of the economist. 

If we say exchanges of wealth, we manifestly have not es- 
caped the difficulty of defining Political Economy, since we 
have, all the same, to tell what wealth is. If we say exchanges 
of services, we must further exjDlain what sort of services we 
mean, since there is an infinitude of services of man to man? 
in a great variety of relations, Avith which Political Economy 
can claim to have nothing to do. The services of parents to 
children, of children to parents, and of children to each other, 
though occupying no small share of the lifetime, and exhaust- 
ing no small share of the vital force, of nearly all members of 
the community, do not form any part of the subject matter 
of Political Economy. 

If we say " economical services," Ave have still to define the 
scope of the Avord economical : that is, Ave are back again 
just at the point from Avhich Ave started. 

5. The substitute offered for the term Avealth, in describing 



*Prof. Perry congratulates himself on having been "the first to drop 
the technical use of the term "Wealth — a terra that has always proved an 
invincible foe to ever}'' one trying to wrestle with it scientifically." 



4 POLITICAL ECOXOMY. 

the field of Political Economy, j^roving thus defective, let ns 
see what we can do with the word so long in use. 

Wealth is, as Prof. Price justly observes, "the word Avhich 
belongs to the world which Political Economy addresses." 
It would, therefore, be a matter of regret, were it to be aban- 
doned unnecessarily. When the man of business, the labor- 
ing man, even the man of leisure, is told that Political Econo- 
my is the science of Avealth, he at once feels drawn to the 
subject. No one is above, few are below, an interest in the 
production of Avealth. But the term, science of exchanges, 
is not especially attractive. A banker, deeming that "foreign 
exchanges " are meant, may at first think himself concerned; 
but will discover his misapprehension when he opens a trea- 
tise on the subject. The great majority of people will doubt, 
on hearing the title, whether they care much or anything about 
the science of exchanges. 

Since, then, so great jjopular interest attaches to the word 
wealth, it would be a pity to lose the use of it without 
good reason. 

And we note that the conception of wealth formed by men 
Avho are not students of Political Economy, is clear and well- 
defined. It is only scholars, Avhen they begin to talk and 
write about wealth, who find any difiiculty in the use of the 
word. Stop a dozen men in« succession, plain, sensible, unlet- 
tered men, and question them respecting their idea of Avhat 
constitutes Avealth, and you Avill find an almost perfect agree- 
ment among them. " Every one," says Mr. John Stuart Mill, 
" has a notion sufficiently correct for common purposes of AA'hat 
is meant by Avoalth. The enquiries Avhich relate to it are in no 
danger of being confounded VA^th those relating to any other 
of the great human interests. " 

6. The consideration already noted constitutes a strong ob- 
jection to tlie abandonment of the Avord, Avealth, in Political 
Economy ; and if we enquire Avhat is the difficulty Avhich is 
attributed to the use of that term, Ave find that it relates, not 
so much to the definition of Avealth, as to the formation of a 
catalogue of the articles Avhich make up the sum of the 
Avealth of an individual or communitv. 



DEFINITIONS. 5 

Now, it IS not important that such a catalogue should be 
formed. It would not even be fatal to a definition of wealth 
that certain objects should be found which seemed to fall 
across the lines of demarcation. All definitions in Political 
Economy, as, indeed, in the natural sciences, are subject to 
this condition. The distinction between animals and vegeta- 
bles, for instance, is a very useful and proper one ; yet few 
naturalists will presume to say just where the vegetable 
kingdom ends and the animal kingdom begins. There are 
objects in nature Avhich puzzle the most learned scientist to 
say whether they are animal or vegetable. Yet we do not, 
on that account, hesitate to say that a tree belongs to the 
vegetable, and an elephant to the animal kingdom. 

7. Relation of Wealth to Value.— Wealth comprises all ar- 
ticles of value and nothing else. If anything have not value, 
it does not belong to this category. It may conceivably be 
better than wealth; but it certainly is other than wealth. It 
may become a means of acquiring wealth; but it is not wealth 
itself. In the language of Prof. N. W. Senior, "the words 
wealth and value differ as substance and attribute. All 
those things, and those only, which constitute wealth, are 
valuable." 

8. But What is Value ?— Value is the j)ower which an arti- 
cle confers upon its possessor, irrespective of legal authority 
or personal sentiments, of commanding, in exchange for itself, 
the labor, or the products of the labor, of others. Briefly 
and somewhat elliptically speaking : Value is power in ex- 
change. 

We say : irresj^ective of legal authority. The Emperor of 
Germany can, by a word, call two millions of men from their 
homes and send them to distant fields, even to foreign laods, 
to work, to watch, to march, to fight and to die. Yet these 
services are not economic, because they are not voluntary, 
being rendered in submission to legal authority, supported by 
overwhelming force. On the other hand, the services of a 
soldier in the British army are economic, as they are ren- 
dered under the terms of a voluntary enlistment, the result 
of a fair and open bargain between the crown and the subject. 



(; POLITIC A I. ECONOMY. 

We say also : irrespective of jjersoual sentiments. The 
mother hangs over the sick bed, day and night, draining her 
very life blood to save her child. Her services are not eco- 
nomic, because they are dictated by a purely personal senti- 
ment. On the other hand the Avork of the hired nurse and 
of the feed physician comes fairly within the view of the 
economist. 

9. We note that exchange implies two exchangers. Value 
is, then, a social phenomenon. 

But exchange imj^lies, also, the capability of detaching from 
the i^rescnt possessor the articles to be exchanged, and making 
them o^■er to another. 

Are health, strength, intelligence, skill, wealth? Have 
they value ? 

Not a little of the difficulty which has attended the use, in 
economics, of the word wealth, has arisen from attributing 
value to such properties or possessions as these, and including 
them in the sum of the wealth of individuals and communities. 
Prof. Alfred Marshall, in his admirable little work, "The 
Economics of Industry," even includes honesty in the " per- 
sonal wealth " of a country. 

But let us apply the test of our definition. Can these 
possessions or properties be exchanged ? Can health, 
strength, intelligence, skill be detached and become the prop- 
erty of another? No ; they can be taken away from one, as 
by sickness or death ; but they cannot be made over to any 
one else. The gouty millionaire cannot, with all that he has, 
purchase the robust health of the laborer by the wayside, or 
buy for his empty-headed son the learning or the trained fac- 
ulties of the humblest scholar. Hence, all that which some 
economists liave called intellectual capital, and. all that which 
by analogy might be called physical capital, are to be 
excluded from the category of wealth. These have seemed 
to be things so desirable in themselves, so much to be pre- 
ferred, in any right view of human welfare, that excellent 
writers have not been able to bring themselves to leave them 
out of the field of economics. But Political P^conomy is tlu- 
science, not of welfare, but of wealth. There may be many 



DEFINITIONS. 7 

things which are better than wealth, which are yet not to be 
called wealth. A good name is rather to be chosen than 
riches, and loving favor than silver and gold ; yet a good name 
is not riches, and loving favor is neither silver nor gold. 

Now here the popular understanding of the word coincides 
with the definition given for scientific pui-poses. Plain men 
do not speak of such qualities, or endowments, as being wealth. 
No merchant or manufacturer or laboring man would include 
any one of these items in an account of hi^ wealth, however 
precious he might esteem them. 

10. And it is to be noted that it does not matter whether 
the incapacity to detach and make over a possession to another, 
arises fi-om the nature of things, as in the case of personal 
health and strength, skill and intelligence, or from the con- 
straints of law or public opinion. In Circassia, a beautiful 
daughter is wealth, and is popularly and justly so accounted. 
No one in making up the list of his wealth would omit this 
item from the account, any more than he would leave out his 
horses or his fields. In Christian countries, a daughter is not 
Avealth, though she is far better than wealth. The Proclama- 
tion of Emancipation, in the United States and in Russia, anni- 
hilated a vast mass of wealth; it created what was better than 
much wealth — a body of free men. 

But while strengtti, skill and intelligence cannot be detach- 
ed, and transferred in an act of exchange, and thus cannot be 
said to be wealth, within our definition, the present use of 
them can be assigned to another than the possessor, and hence 
may become the subject of exchange. The rich valetudina- 
rian may command the services of the robust laborer, in wait- 
ing on his person; he may hire the poor scholar to be tutor 
to his son. The usufruct of all such qualities and endowments, 
therefore, properly constitutes an item of wealth, and, by the 
force of contract, the capability of transferring this species 
of wealth may be extended beyond the present moment to 
considerable periods of time, as when a man is hired by the 
month or the year. 

11. Relation of Wealth to Community of Goods. — But it 
may be objected that, inasmuch as excliange implies a pres- 



8 POLITICAL ECONOMY. 

ent individual possessor Avere community of goods or of la- 
bor to be universally established, there would no longer be 
such a thing as wealth, or such a department of human en- 
quiry as Political Economy. 

To this it is sufficient to reply, that community of labor or 
of enjoyment is simply mipossible, from the very nature of 
mankind. 

Were a hundred persons to unite in such a society, each 
would have to labor by himself, the exertion must be his; 
the pain and the weariness would be his alone. On the other 
hand, what he i-eceived from the common stock, for the sup- 
port of life and for enjoyment, would be his own; the food 
Avould nourish him alone; the clothing and the fuel would 
warm only him; none of his fellows would share the pleasure 
or the benefit of what lie consumed. 

The so-called community of labor and of goods, then, 
amounts simply to a mode oi roughly ajiportioning exertion 
and enjoyment, on the basis of an assumed equality of abili- 
ties or of needs. Subject to all the injustice involved in such 
an assumption, each one of the hundred members would still 
part Avith his own services to his fellows, and receive from them 
his own remuneration, in the form of food, clothing, fuel and 
shelter. 

12. Relation of Value to Gratuity.- — It will have been 
gathered from what lias been said respecting value, that Avealtli 
and well-being are not synonymous; that much which is 
essential to the latter is no element of the former; that wealth 
may be increased at the expense of well-being, as in the case 
of the reduction of free laborers to the grade of chattel slavery; 
that wealth may be diminished temporarily by causes which 
minister to the advancement of the community and the State, 
as in the case of im'entions which throw out of use large 
amounts of material and apparatus formerly employed to serve 
the most necessary purposes, or of ameliorating changes in 
nature which allow costly contrivances to be dispensed with. 

" If," wrote Prof. Senior, "the climate of England could 
suddenly be changed totliatof J^ogota, and the warmth which 
we extract imperfectly and expensively from fuel were sup- 



DEFINITIONS. 9 

plied by tibe sun, fuel would cease to be useful, except as one 
of the productive instruments employed by art; we should 
Avant no more grates or chimney-pieces iu our sitting rooms; 
what had previously been a considerable amount of property, 
in the fixtures of houses, in stock iu trade and materials, 
would become valueless; coals would sink iu price; the most 
expensive mines would be abandoned; those which were 
retained would command smaller rents." 

13. We are now called further to notice that there is a 
constant tendency to this diminution of the sum of wealth, 
and even to the annihilation of individual items in the 
schedule of wealth, from age to age. So rapid and persistent 
is that tendency that, but for the increase of population, and 
the multij)lication and diversification of human desires, due 
to increasing civilization and refinement, the subject matter 
with which Political Economy has to deal would be continu- 
ally diminishing. 

How small the sum of wealth which would suffice for a 
community, in our stage of knowledge and skill, which should 
aspire to live only as well as a tribe of savages! How small, 
not merely in comparison with our present sum of wealth, 
but small, also, in comparison with the wealth of a savage 
tribe! The boats, the nets, the huts, the clothing and the 
domestic utensils of a primitive community represent an 
incredible amount of exertion and sacrifice; possess a vast 
amount of purchasing power. A like outfit would require 
ibut an insignificant part of the labor power of a modern 
community, and wou.ld have but little purchasing power. 

14. The tendency which has been noted arises out of the 
progi'ess of mankind in the chemical and mechanical arts, by 
which operations formerly difficult are made easy; by which 
materials naturally scarce are made plentiful; by which 
human necessities once urgently felt are wholly obviated, 
and, finally, by which things once costing labor are made to 
produce themselves spontaneously. 

In fact, however, while, in any community, this displace- 
ment of value by gratuity is continually in jjrogress, the 
increase of population and the multiplication and diversifica- 



10 POLITICAL ECONOMY. 

tion of human wants may be operating as steadily and strongly 
in the other direction. The labor that is made free by dis- 
coveries and inventions is applied to overcome the difficulties 
which withstand the gratification of newly-felt desires of 
the community. The hut is pulled down to make room for 
the cottage; the cottage gives way to the mansion; the 
mansion to the palace; the rude covering of skins is replaced 
by the comely garment of woven stuffs; and these, in the 
progress of luxury, by the most splendid fabrics of human 
skill; and in a thousand forms wealth is created by the whole 
energy of the community, quickened by a zeal even greater 
than that which animated the exertions of their rude fore- 
fathers to obtain a scanty and squalid subsistence. 

15. "What is the Distinction between Wealth and Prop- 
erty? — A further distinction, which requires to be made, is 
that between wealth and property. The neglect of this dis- 
tinction has caused great confusion, especially in discussions 
of the principles and methods of taxation. 

Mr. J. S. Mill affords an example of the confusion of these 
terms Avhen he says, respecting a mortgage on a landed es- 
tate, "this is wealth to the person to whom it brings in a 
revenue, and who could, perhaps, sell it in the market for the 
full amount of the debt. But it is not Avealth to the coun- 
try; if the engagement wei-e annulled, the country Avould be 
neither poorer nor richer."' 

A more accurate statement of the case would be this: The 
landed estate is wealth, that is, possesses amIuc; that is, con- 
fers upon its possessor the power of commanding, in ex- 
change for itself, the labor, or the products of the labor, of 
others. The mortgage is property, k)r a right to wealth; in 
this case, a right to an undivided portion of the landed es- 
tate. The amount of the property of the owner of the estate 
is tlie value of the estate less the mortgage. There is but 
one body of Avealth; there are two i^roperties, that of the 
owner, and that of the mortgagee. The "wealth of the com- 
munity is no greater and no less, whether the ownership of 
the estate be entire, or divided into two or half a dozen prop- 
erties. 



PREMISES OF POLITICAL ECONOMY U 

ludeecl, we might say that '' proiserty " is not a word with 
which the political economist has anything to do. It is legal, 
not economical, in its significance. 

" The wealth," says Prof. Senior, " which consists merely of 
a right or credit, on the part of A., with a corresponding duty 
or debt on the part of B., is not considered by the political 
economist. He deals with the things which are the subjects 
of the right, or the credit, not with the claims or liabilities 
which may affect them. In fact, tho credit amounts merely 
to this: that B. has in his hands a part of the ^jroperty of A." 

16. The Premises of Political Economy.— What are the 
proper premises of Political Economy ? that is, what facts 
and principles should the economist take to reason fror^? 
Are they many or few ? Shall the economist take into ac- 
count all the facts, mental or physical, which influence the 
phenomena of wealth; or shall he confine himself to certain 
principal facts ? 

Instead of taking man, for the purposes of economical 
reasoning, precisely as he is found to be, with all his appeten- 
cies and characteristics, so far as they affect the power and 
the disposition to labor, or so far as they increase or impair 
his ability to secure his individual share in the distribution 
of the product of industry, shall the economist create, for 
the purposes of his reasoning, an economic man, assumed to 
be impelled by certain motives in respect to wealth, from 
whose actions men in general, knowing themselves to be 
more or less fully controlled by similar motives, may derive 
instruction ? 

Instead of seeking to extend his knowledge of the actual 
conditions under which wealth is produced by man, shall the 
economist content himself with certain leading conditions, 
such as that food is produced without human labor only in 
small quantities and very precariously; that the soils of every 
country vary widely in fertility; and that of no soil can 
the produce be increased indefinitely without a more than 
proportional expenditure of labor and capital ? 

Shall the economist take account of the various endow- 
ments in the way of soil and climate^ mineral resources and 



12 POLITICAL ECONOMY. 

water power of different countries; shall lie study their 
institutions and the predominant traits of character mani- 
fested by their people, so far as these appear to influence their 
actions in respect to wealth; or, shall he, on the other hand, 
disregard all that makes one nation to differ from another, 
caring to learn nothing of any which would not hold good of 
nil? 

Upon the answer to these questions depends the character 
and logical method of Political Economy. Upon that answer 
depends also much of the usefulness of this department of 
enquiry and the interest it may be expected to arouse in the 
public mind. 

17. Two Schools of Political Economy.— The differences 
of opinion which exist regarding the proper extent of the 
premises of Political Economy have given rise to two schools 
of Political Economy, which are commonly called the English 
and the German school. 

The economists of the former school insist that the 
proper jjremises of pure Political Economy consist of a 
few certain facts of human nature, of human society, and of 
the physical constitution of the earth; that these, not more 
than five or six in number, constitute all the premises jjroper 
to the enquii-y; and that the scope of economical reasoning 
cannot be extended beyond these without destroying the 
purity and simplicity of the science, and introducing error 
and confusion. 

The economists of the latter school hold that it is the prov- 
ince of Political Economy to explain the phenomena of 
wealth; and that, in order to do this, the economist must 
enquire how men do, in fact, behave in regard to wealth, con- 
stituted as they are, and under the conditions and circum- 
stances in whicli they are placed. 

In this view, nothing that imi^ortantly influences the pro- 
duction and distribution of wealth can safely be neglected by 
the economist. All human history becomes his domain; the 
other sciences, alike the jjhy.sical and the moral, become in a 
measure tributary to the science lie cultivates. 

With its j)remise8 thus enlarged, Political Economy ceases 



THE TWO SCHOOLS. 13 

to be something which one man of superior intellect could, 
with a definite exertion of his faculties, Avork completely out 
at a sitting, as Beckford wrote '^ Vathek;" and that too without 
having visited any community beyond the one in which he 
was born, or knowing a page of history. Political Economy 
as thus comprehended, becomes a work to which many men 
and successive ages must contribute 5 the material of which is 
accumulated in human experience, and is thus continually on 
the increase.- It becomes a work which never is, but is always 
to be^ done, growing with tho growing knowledge of the 
raceo 

I80 It has been said that the two schools of Political 
Economy are known as tho English and German school. The 
terms arc not fortunate, inasmuch as some of the economists 
who have labored most fully in the spirit of the so-called 
German school, have been, if not Englishmen, natives of the 
British Isles. The best statement known to me of the true 
scope of economical enquiry is that given by Prof. Cairnes, 
once of the University of Dublin, and later of the University 
of London, from whose admirable lectures* I abridge the fol- 
lowing paragraphs, preserving the author's phraseology : 

The desires, passions and propensities which influence man- 
kind in the i)ursuit of wealth are almost infinite. Yet amono-st 
these are some princij)les of so marked and paramount a chai-- 
acter as both to admit of being ascertained and, when ascer- 
tained, to afford the data for determining the most imiDortant 
laws of the production and distribution of wealth. To 
possess himself of these is the first business of the political 
economist. He has then to take account of some leadino- 
physiological facts connected with human nature; and, lastly, 
to ascertain the principal physical characteristics of those 
natural agents of production on which human industry is 
exercised. 

But it must not be thought that when these cardinal facts 



* " On the Character and Logical Method of Political Economy," first 
published in 1857; reprinted, revised and enlarged in 1875, just before 
the lamented author's death. 



14 POLiriCAL ECONOMY. 

Lave been ascertained, and their consequences duly devel- 
oped, the labors of the political economist are at an end. 
Many subordinate influences will intervene to disturb, and 
occasionally to reverse, the operations of the more powerful 
princJi^les, and thus to modify the resulting phenomena. 

The next step, therefore, in his investigations will be to en- 
deavor to ascertain the character of those subordinate causes, 
whether mental or physical, political or social, which influ- 
ence human conduct in the pursuit of wealth; and these, 
when he has found them, and is enabled to appreciate them 
with sufficient accuracy, lie will incorporate amongst the 
premises of the science. 

Thus, the political and social institutions of a country, 
and, in particular, the laws afl'ecting the tenure of land, will be 
included among such subordinate agencies; and it will be for 
the political economist to show in Avhat way causes of this 
kind modify the operation of more fundamental principles. 
Again, any great discovery in the arts of production, such, 
e. g., as the steam engine, will be a new fact for the consider- 
ation of the political economist. It will be like the discovery 
of a new planet, the attraction of which, operating on all the 
heavenly bodies within the sphere of its influence, will cause 
them more or less to deviate from the path which had been 
previously calculated for them. 

In the same Avay, also, those motives and j^rinciples of ac- 
tion which may be developed in the progress of society, so 
far as they may be found to affect the i)]ienomena of wealth, 
will also be taken account of by the political economist. He 
will consider, e. (/., the influence of custom in modifying hu- 
man conduct in the pursuit of wealth; he will consider how, 
as civilization advances, the estimation of the future in rela- 
tion to the present is enhanced, and the desire for immediate 
enjoyment is controlled by the increasing efiicacy of pruden- 
tial restraint; lie Avill also observe how ideas of decency, com- 
fort and luxury are developed as society progresses, modify- 
ing tlie natural force of the principle of population, influenc- 
ing tlie mode of expenditure of different chisses, and affecting 
thereby the distribution of industrial ])roducts. Even morul 



THE TWO SCHOOLS. 15 

and religious considerations are to be taken account of by the 
economist precisely in so far as they are found, in fact, to af- 
fect the conduct of men in the pursuit of wealth. 

Nothing could be added to this admirable statement of the 
logical method of Political Economy according to the so- 
called German school, that is, as it is pursued by those who 
hold that it is the province of Political Economy to explain 
the phenomena of wealth; and that, to this end, all causes 
which, whether primarily, or principally social, ethical, physi- 
cal or physiological, do, in fact, enter to affect the actions of 
men respecting wealth, should be identified and determined, so 
far as may be, both in their direction and in the degree of 
their influence. 

In this view, the economist who omits any cause, structural 
or dynamical, physical or moral, which affects the production, 
exchange, disti'ibution or consumption of wealth, must jus- 
tify himself, not by the plea that such a cause has no rele- 
vancy to his investigation, but by some plea which would 
excuse an admittedly less than complete treatment of the sub- 
ject, e.g., the lack of information, the limitations of the hu- 
man faculties, or the need, for popular instruction, of very 
brief and very general statements of principle. 

19. On the. other hand, perhaps the best statement of the 
view taken by the economists of the so-called English school, 
as to the proper premises of Political Economy, is that given 
by Mr. J. S. Mill, in his work published in 1844. 

"Political Economy," says Mr, Mill, "is concerned with 
man solely as a being who desires to possess wealth and who 
is capable of judging of the c"omj)arative efficacy of means 
to that end, * * * j|^ makes entire abstraction of every 
other human passion or motive, exce23t those which may be 
regarded as perpetually antagonizing principles to the desire 
of wealth, namely, aversion to labor and desire of the pres- 
ent enjoyment of costly indulgences. These it takes, to a 
certain extent, into its calculations, because these do not 
merely, like other desires, occasionally conflict with the pur- 
suit of wealth, but accompany it always, as a drag or impedi- 
ment, and are, therefore, insej)arably mixed up in the consid- 



16 POLITICAL ECONOMY. 

eration of it. Political Economy considers mankind as oc- 
cupied solely in acquiring and consuming wealth." * 

20, ^"^ e have here all the elements of the economic man. He 
is taken as a being perfectly capable of judging of the compara- 
tive efficacy of means to the end of wealth. That is, he 
will never fail, whoever he may be, or wherever he may live, 
whether capitalist or laborer, rich or poor, taught or untaught, 
to know exactly Avhat course will secure his highest eco- 
nomic interest, that is bring him the largest amount of 
wealth. 

Moreover, that end of wealth he never fails to desire, with 
a steady, uniform, constant passion. Of every other human 
passion or motive. Political Economy ""makes- entii-e abstrac- 
tion." Love of country, love oi honor, love of friends, love of 
learning, love of art, pity, honor, shame, religion, charity, 
will never, so far as Political Economy cares to take account, 
withstand in the slightest degree, or for the shortest time, 
the effort of the economic man to amass wealth. 

There are, however, two human passions and motives, of 
which Political Economy takes account, as "perpetually an- 
tagonizing principles to the desire of wealth," namely "aver- 
sion to labor and desire of the present enjoyment of costly 
indulgences," that is indolence and gluttony. 

As by this view of Political Economy all men are taken as 
equally absorbed in the passion for Avealth, so all men are 
taken as equally lazy and self-indulgent. The South Sea Is- 
lander and the large-brained European are equally averse to 
exertion; equally subject to the impulses of immediate appe- 
tite. 

21. Such are the features of the economic man, as delin- 
eated by Mr, Mill, and not a few economical treatises have 
been written mainly according to this method. The ablest 
body of economic doctrine ever composed from this point of 
view is that of David Ricardo, Hence this school of Politi- 
cal Economy may not inaptly be called the Ricardian, Mr. 

* lu his great work, subsequently publislicd, Mr. Mill did not confine 
himself to the method here described; but professedly dealt with Political 
Eeonomy in many of its " Applications lo Social Philosophy." 



THE TWO SCHOOLS. 17 

Ricardo, indeed, modified these assumjjtions so far as to rec- 
ognize the difference in economic quality existing between 
men of different countries, not only between the East Indian 
and the Englishman, but also between the Englishman and 
the Portuguese, Within the same country, however, he rec- 
ognized no such differences; but held rigorously to the few 
and simple postulates which have been stated. The acuteness 
of his intellect, his great dialectical skill, the tenacity of his 
logical grasj), make him easily the master of all the econo- 
mists of this school. 

22. It need not be a matter of surprise that so wide a dif- 
ference of opinion as to the ]5roper scope of economical en- 
quiry should have led to much passionate controversy; and 
that writers of the two schools should often have shown but 
small respect for each other. The economists of the so-called 
German school have been disjjosed to deny, not only the uni- 
versality of the princij)les deduced from assumptions so 
arbitrary and falling so far short of the real facts of life and 
society, but also the significance, for any j^ur^jose whatever, 
of conclusions thus obtained. The economists of the so- 
called English, or Ricardian, school, have treated the method 
of their opponents as unscientific, giving scojdc to charla- 
tanry, and at the best tending to mere sentimentality. 

The mutual contempt entertained by the two schools is not 
justified by a large view of the progress of Political Economy 
in the past, or by a consideration of the history of other 
social sciences. Political Economy should begin Avith the 
Ricardian method. A few simple assumj^tions beiug made, 
the processes of the production, exchange, and distribution 
of wealth should be traced out and be brought together into 
a complete system, which may be called pure Political Econo- 
my, or arbitrary Political Economy, or a^jriori Political Econ- 
omy, or by the name of its greatest teacher, Ricardian Po- 
litical Economy. Such a scheme should constitute the skele- 
ton of all economical reasoning; but upon this ghastly frame- 
work should be imposed the flesh and blood of an actual, 
vital Political Economy, which takes account of men and so- 
cieties as they are, with all their sympathies, apathies, and 



18 POLITICAL ECONOMY. 

antipathies; with every organ developed, as in life; every 
nerve of motion or of sensibility in full play. 

On this subject what could be more pregnant with mean- 
ing than the aphorism of Bacon, " Those who have treated of 
the sciences have been either empirics or dogmatical. 

"The former, like ants, only heap up and use their store; 
the latter, like sj)iders, sjsin out their own web. 

" The bee, as a mean between both, extracts matter from 
the flowers of the garden and the field; but works and fash- 
ions it by its own efforts. 

" The true labor of i^hilosophy resembles hers : for it neither 
relies entirely or principally on the powers of the mind, nor 
yet lays up in the memory the matter afforded by the experi- 
ments of natural history and mechanics, in its raw state, but 
changes and works it in the understanding." 

23. Is Political Seonomy indeed a Science ? The answer 
to this question depends rather upon the definition im230sed 
on the word science, than upon the view we take of Political 
Economy itself. If we gi'^'e the word no wider extension than 
Dr. Whewell gave it, when he spoke of "those bodies of 
knowledge which we call sciences," Political Economy indubit- 
ably ranks as a science. It forms a body of knowledge, con- 
stantly growing, it is true, from the outside, and undergoing 
not a little change from time to time within, yet still embrac- 
ing, in the present, a vast collection of related facts, with the 
reason of their succession, one to another, more or less clearly 
seen, and allowing many practical rules and precepts of great 
importance in determining human conduct to be deduced with 
all needed assurance. In this sense, then. Political Economy 
is a science. 

Whether it be a science in the highest sense given to that 
word, may be and has been disputed. M. Comte, the great 
positivist philosopher of France, has denied the claim of 
Political Economy to this title. In his view, it is an attribute 
of a true social science that it results in establishing a rational 
filiation between events, so as to allow of systematic prevision 
respecting their occurrence in a certain succession. Prediction 
— forecast of the future — is, according to M. Comte, the fruit 



IS IT A SCIENCES 19 

of all true science. Of this, he asserts, political economy has 
not shown itseK capable. 

Prof. Cairnes rejoins that " the economical prevision is a 
prevision not of events, but of tendencies." Admitting the 
incapacity of forecasting events. Prof. Cairnes urges that 
" it argues no imperfection in economic science; the imper- 
fection is not here, but in those other cognate sciences, to 
which belongs the determination of the non-economic quan- 
tities in the problem, etc. * * Meanwhile it is no slight 
gain, in speculating on the future of society, to have it in our 
l^ower to determine the direction of an order of tendencies 
exercising so wide, constant and potent an influence on the 
course of human development, as the conditions of wealth. 
* * * So much for the highest form of scientific fruit, 
'forecast of the future.' The principle, however, of establish- 
ing a filiation in events may take (he more modest form of 
explaining the j^ast. * * That political economy, assuming 
that it fulfills its limited purpose of unfolding the natural 
laws of wealth, is capable of throwing light on the evolutions 
of history, will scarcely be denied." 

24. We cannot stay to discuss the question. Whether 
Political Economy be or be not a science in the high sense at- 
tributed to that word by M. Comte, it assuredly is, as a 
branch of social inquiry, worthy of the earnest attention of 
every publicist and every citizen. It deals with some of the 
most important subjects which concern society* and whether 
the degree of assurance that may be attained in the study of 
these questions be higher or be lower, the questions cannot 
but be more justly decided by reason of such a study of the 
conditions of wealth. In the practical business of life, one 
may not be able to establish such a rational filiation betAveen 
events as to make it absolutely certain that by doing this act 
or taking that course, he will secure the good he aims at; yet 
those who act upon principles and rules derived from study 
and observation of life, do vastly better for themselves, on 
the whole, than those whose actions are governed by impulse 
or chance. 

If Political Economy have not yet reached the standing of a 



30 POLITICAL ECONOMY. 

true science, in the high sense in which that word is used by 
M. Corate; if jjolitical economists are still at disagreement on 
many points of theoretical or practical importance, it cannot 
be denied that the investigation of the conditions of wealth by 
Adam Smith and his successors has already resulted in the re- 
moval of monstrous delusions which a century ago pro- 
foundly affected the legislation of every civilized country, to 
the inexpressible injury of the commonwealth of nations. 
The first fruits of Political Economy have been worth a mil- 
lion times the intellectual effort that has been bestowed uj^on 
the subject. If M. Comte selects continuity and fecundity as 
the two tests which furnish the least equivocal evidence of 
truly scientific conceptions, Prof. Cairnes is right in pointing to 
the names of Malthus, Say, Ricardo, Tooke, Senior and 
Mill; and asserting that a more remarkable examj)le of con- 
tinuity of doctrine, of development of seminal ideas, of 
original apercus, extended, corrected, occasionally recast, of 
new discoveries supplementing, sometimes modifying the old — 
in short, all the indications of ^progressive science, will not 
easily be found, even in the history of physical speculation. 

25. Distinction Between Political Economy as a Science 
and as an Art. — " If," says Prof. Senior, " Political Economy is 
to be treated as a science, it may be defined as the science 
which states the laws regulating the production and distribu- 
tion of wealth, so far as they depend on the action of the 
human mind. If it be treated as an art, it may be defined as 
the art which points out the institutions and habits most con- 
ducive to the production and accumulation of wealth; or, if 
the teacher ventures to take a Avider view, as the art which 
l^oints out the institutions and habits most conducive to that 
production, accumulation and distribution of Avealth which is 
most favorable to the happiness of mankind." 

Prof. Senior goes on to remark that in the 18th century, 
Political Economy Avas treated as an art, a branch of states- 
manship. Sir James Steuart so treated it. The French Physio- 
crats so regarded it. Even with Adam Smith, " the scientific 
portion of his work is merely an introduction to that Avhich is 
practical." 



A SCIENCE OR AN ARTf 31 

Oddly enough, the statesman Turgot must be made an ex- 
ception to the remark respecting the French Physiocrats, " It 
is remarkable," says Prof. Senior, " that the only man among 
the disciples of Quesnay who was actually practising political 
economy as an art, is the only one who treated its principles 
as a science. His ' Reflexions sur la formation et la distri- 
bution des richesses,' published in 1774, is a purely scientific 
treatise. It contains not a word of precept, and might have 
been written by an ascetic, who believed wealth to be an evil." 

Prof. Senior continues : " The English writers who have 
succeeded Adam Smith have generally set out by defining 
political economy as a science, and jDroceeded to treat it as 
an art. Mr. Ricardo is, however, an exception. His great 
work is little less scientific than that of Turgot. His absti- 
nence from precept, and even from illustrations drawn from 
real life is the more remarkable, as the subject of his treatise 
is ' Distribution,' the most j)ractical branch of political econ- 
omy, and ' Taxation,' the most practical branch of Distribu- 
tion. The modern economists of Fraace, Germany, Spain, 
Italy and America, so far as lam acquainted with their works, 
all treat political economy as an art." 

26. The inveterate disi:)Ositiou, which Prof. Senior thus 
notes, to abandon the investigation of principles for the for- 
mulation of precepts, has doubtless retarded greatly the pro- 
gress of political economy. It cannot be too strongly in- 
sisted on, that the economist, as such, has nothing to do with 
the questions, what men had better do; how nations should 
be governed; or what regulations should be made for their 
mutual intercourse. His business simply is to trace economi- 
cal effects to their causes, leaving it to the j)hilosopher of 
e very-day life, to the moralist or the statesman, to teach how 
men and nations should act in view of the economical prin- 
ciples so established. The political economist, for example, 
has no more call to preach free trade, as the policy of nations, 
than the physiologist to advocate monogamy as a legal insti- 
tution. 

27. Is There a National Political Economy ?— This 
is a question which has been much debated. The so-called 



23 POLITICAL ECONOMY. 

protectionists have always favored the view that each country 
has a political economy of its own, and one eminent writer 
of our own country has entitled his work "American Political 
Economy." 

The controversy over this question arises out of the confu- 
sion produced, first, by the failure to distinguish between the 
science of political economy and the use of political economy 
in the art of statesraanshij); and, secondly, by the different 
views taken of the proper premises of the science of political 
economy, by the two schools before referred to. 

Those who say that there is an American Political Econo- 
my, for example, mean that the jDrecepts derived from politi- 
cal economy, whether addressed to the legislator, or to the 
body of the people, should not be applied to America, without 
constant reference to the peculiar constitution, conditions and 
needs of America. But a science has nothing to do with pre- 
cepts or prescrijDtions. Rules of conduct belong to an art. 

28. Moreover, the notion that there is a political economy 
for each race of men, and even for each nation, has been fos- 
tered by the arbitrary character of the assumptions of what 
we have called the Ricardian school, and by the refusal to 
pay a reasonable regard to some of the most characteristic 
features of human nature and some of the most prominent 
facts of industrial society, embracing instituiions and laws 
which vitally affect the production and distribution of wealth. 

Thus, the economist, in discussing the question of wages, 
assumes, for the purposes of his reasoning, a body of labor- 
ers who are wholly intent on getting the largest remuneration 
which will be paid them anywhere, by any one, without re- 
gard to any other consideration; who Avill, for any economical 
advantage, however slight, change their occupation, and with 
equal readiness change their place of abode, at least within 
their own country; who, moreover, are so intelligent and Avell 
informed, that no preference, economically, can exist on bo- 
half of any other occupation or place of abode, without their 
knowing it, and, of course, acting at once upon it. The econ- 
omist having created such a race of beings, whose likeness is 
found nowhere upon earth, proceeds to i)oint out, it may be 



HOW RELATED TO OTHER SCIENCESf 23 

with great acuteness and accuracy, Avliat the individual mem- 
bers thereof -would do in various supjDOsed cases, under the 
impulse of this or that economical force. His conclusions are 
put forth as " laws " of political economy. 

Is it strange that an intelligent East Indian, reading these 
conclusions, should say, if this is political economy, it must be 
European Political Economy, and there should be a separate 
Political Economy for the East, since here, over vast regions, 
social and religious feelings absolutely prohibit multitudes of 
workmen from changing their occupation, for any reason, 
while the almost uniform penury of the laboring class, their 
ignorance, their superstition, their fear of change, combine 
to render movement from place to place tardy and difficult, 
if not, as in most cases, practically impossible ? 

29. Belation of Political Economy to other Sciences. — 
Political Economy does not ascertain for itself a single one of 
the facts which form the premises of the economist. These are 
all derived from other sciences as data, i.e., things given. From 
the physiologist, for instance, is obtained the fact of man's 
need of food to sustain life, from which is deduced the eco- 
nomical doctrine of "necessary wages;" and from the physi- 
ologist again, is obtained the fact of a strong disposition, 
arising from the sexual passion, to carry population beyond 
the limits of decent or comfortable subsistence, from whichis 
deduced the much-abused doctrine known as JVIalthusianism, 
From the agricultural chemist is obtained the fact that, be- 
yond a certain point, the application of capital and labor to 
land yields a continually diminishing return, from which is 
deduced the whole economical doctrine of Rent. None of 
these facts does the economist ascertain for himself. He 
takes them, as the realized results of other sciences, and 
makes them the premises, the starting point, of his own. 

Even the fact of the indisj^osition of men to strenuous 
exertion, from which is deduced the princiiDle that they will, 
so far as they are intelligent and are left free to act, always 
buy in the cheapest market, is not found by the economist. It 
is furnished, ready to his hand, by the moral philosopher. 
The economist takes from all sciences, by turns, all facts 



24 POLITICAL ECONOMY. 

which bear upon the one subject, wealtli; considers them only 
so far as they bear thereon ; and puts them together and builds 
themuj) into a " body of knowledge " which he calls the Science 
of Wealth, or Political Economy. Even in the field of prices 
and wages, the distinction should always be observed between 
the economic statistician, who finds the facts, and the econo- 
mist who puts the facts into tlicir place in the industrial system. 

30. Political Economy and Natural Theology. — Prof. 
Cliffe Leslie has very clearly shown the powerful influence 
exerted upon the economical views of Adam Smith, who, as 
Professor of Moral Philosophy in the University of Glasgow, 
had occasion to teach both Political Economy and Natural 
Theology, by the assumption of a beneficent natural order of 
society, to the disturbance of which by human institutions 
are due all the economical evils that afflict mankind. To 
this order-of-nature it should, according to Dr. Smith , be the 
unceasing efl:ort of mankind to return; and the political 
economist will fully discharge himself of his mission as an 
investigator and teacher when he points out the path by 
which mankind may make their way back to that state in 
Avhich all things economical will work together for the good 
of the race. As Dugald Stewart said of Smith : " the great 
and leading object of his speculations is to illustrate the provi- 
sions made by nature, in the principles of the human mind 
and in the circumstances of man's external situation, for 
a gradual and progressive augmentation in the means of 
national wealth, and to demonstrate that the most effectual 
means of ad^•ancing a people to greatness is to maintain that 
order of tilings which nature has pointed out." And what 
Stewart has here said of Adam Smith might be applied, 
M'ithout change, to not a few of Smith's successors. 

31. Now, this subjection of political economy to the inter- 
ests of natural theology is wholly wrong. I do not say that 
good natural theology will make bad political economy. I 
content myself with asserting that political economy has just 
as much right to be independent of natural theology, as have 
astronomy and geology. There was a time when the students 
of those sciences were deemed to be bound to restrain them- 



POLITIC A L ECONOM Y AND NA TURAL THEOLOG Y. 25 

selves within the supposed requirements not only of natural 
theology, but also of revealed religion. We know hoAV mis- 
chievous were the consequences of that subjection of the 
astronomer and the geologist to the prescriptions of the theo- 
logian. Whether political economy have or have not actually 
suffered in the past from a supposed obligation of the same 
sort, we will not take the time to inquire.* It is enough to 
assert its complete freedom from any such obligation in the 
present. 

Political economy owes nothing to natural theology. The 
economist is under no obligation to any assumptions de- 
rived from that source. He has, indeed, no more right to 
start with the theory of an order of nature which is purely 
beneficent, than he would have to start with the opposite 
theory of an order of nature wholly maleficent. As econo- 
mist, he has no mission to " vindicate the Ways of God to 
man." He is to investigate the laws of Avealth: that duty he 
will best discharge by reasoning as justly as his mental powers 
enable him to do, from economic premises which have been 
established by adequate induction, and from such only. It 
is no concern of his where he comes out in relation to any 
theory of the moral constitution of the universe. If the nat- 
ural theologian can make any use of the results of honest, in- 
dependent work in economics he is welcome to do so, but 

*Prof. Leslie holds that political economy has suffered greatly from 
this cause. " The mischief done m political economy by this assump- 
tion respecting the beneficent constitution of nature, and therefore, of 
all human inclinations and desires, has been incalculable. It became an 
axiom of science with many economists, and with all English statesmen, 
that, by a natural law, the interests of mdividuals harmonize with the 
interests of the public; and one pernicious consequence is that the impor- 
tant department of the Consumption of wealth has been in reality alto- 
gether set aside, as lying beyond the pale of economic investigation, or 
passed over with a general assumption, after the manner of Mandeville, 
that private vices are public benefits. * * * Economic investigation 
would long since have penetrated, beneath the surface of pecuniary inter- 
est, to the widely different character of the real aims determining the 
nature and uses of Avealth, but for this assumption of an identity be- 
tween public and private Interest which Adam Smith's authority con- 
verted into an axiom." 



26 POLITICAL ECONOMY. 

this is not a consideration which the economist is at liberty 
to entertain. 

32. Political Economy and Political Equity. — The 
boundary line between ethical and economical enquiry is per- 
fectly clear, if one will but regard it. Great confusion has, 
however, been engendered by writers in economics wandering 
off into discussions of political equity. The economist, as 
such, has nothing to do with the question whether existing 
institutions, or laws, or customs, are right or wrong. His 
only concern with them is to ascertain how they do, in fact, 
affect the j^roduction and distribution of weajth. It is true, 
e g., that if the sense of injustice be awakened in the mass of 
the people, or in any considerable class in the community, indus- 
try, frugality, and sobriety are likely to be in a greater or 
less degree impaired, and thus the production and distribu- 
tion of wealth will be affected. But it is wholly because of 
the effect last indicated, and not at all because of its ethical 
character, that any social arrangement or political institu- 
tion comes within the consideration of the economist. 

Indeed there is reason to believe that such arrangements 
and institutions do not necessarily produce economical evils 
in proportion to the degree in which they violate political 
equity. A custom or law might conceivably Tbe inequitable 
in the degree to be flagrantly iniquitous, yet exert only a 
slight influence upon the production or distribution of wealth, 
while another, presenting so great an array of reasons in its 
favor, that many ethical writers Avould strongly approve it, 
might, by crossing popular prejudices, or through some 
wholly adventitious feature of its own, become a mighty eco- 
nomical force for mischief, profoundly disturbing the pro- 
ductive system of the country where it should be introduced. 
Indeed, it is not at all because a social arrangement or political 
institution is wrong, but because people think it wrong, that 
it does harm in the domain of wealth. The system of land 
tenure, against Avhich the peasantry of Ireland are so largely 
in revolt, does an amount of mischief which is wholly inde- 
pendent of the consideration whether the Irish people or the 
Eno-lish Parliament be at fault in the matter. 



HOW RELATED TO POLITICAL EQUITY. 27 

33. Hence we say that the limits of strictly economical 
enquiry should be scrupulously respected. The writer on 
ethics who deems the greatest good of the greatest number 
the ultimate rule of right, may, indeed, make excursions into 
economics, in order to judge of the moral quality of an act or 
a system, by its effects on the jsroduction and distribution of 
wealth; but the economist, on his jitart, has no occasion to 
cross the boundary line. The French writers, who have, in 
general, been singularly just in their apprehension of the char- 
acter and logical method of political economy, have, per- 
haps, more than all others, erred on this side. Many of them 
write throughout with a side glance at the existing social 
system. They profess to be intent on the solution of eco- 
nomic problems, while directing their efforts towards the vin- 
dication of political arrangements. The writings of the 
admirable Frederic Bastiat are deeply infected with this 
error. He strives incessantly to prove that the institution of 
pro]3erty is just; whereas the only concern, which, as an 
economist, he has with that institution, is to inquire how it 
influences the actions of mankind in respect to wealth. 

34. Sentiment and Political Economy. — Holding rigidly 
to the same view of the nature and scope of economical 
enquiry, we see that those who allow their economical opinions 
to be in any degree shaped by what is called sentiment, are 
equally wrong with those who sneer at any recognition of 
sentiment by the economist. The economist's own sentiments 
should be put comijletely out of sight; he has only to do 
with the sentiments of others, and with these only so far as 
they affect the actions of men in respect to wealth. 

"VVe shall have occasion to observe that feelings of justice, 
of compassion, of respect, of kindly regard, may greatly in- 
fluence the rents ]3aid in any country, by tenants to land- 
lords, or the wages paid by employers to workingmen or 
workingwomen. So far as such sentiments produce these ef- 
fects, they require to be recognized as economical forces. 

35. Relation of Political Economy to Sociology. — M. 
Comte, whom we have already quoted, as denying to political 
economy the character of a true science, because its history 



28 POLITICAL ECONOMY. 

did not, as he esteemed it, bear the tests of continuity and 
feciindit)^, held that the phenomena of wealth should not, and 
could not advantageously, be considered in any way apart 
from the facts of the intellectual, moral and political order 
with which they are closely interwoven. Society, he held, 
must be considered in the totality of its elements. All isolated 
theory of a particular aspect of social life, such as wealth, or 
of a single order of relations, e.g.^ the economical, he regarded 
as essentially vicious. The laws and conditions of wealth, 
in the view of this writer, are a single thread in a closely 
knit web of social interests and concerns, from which no one 
can be disconnected, to be contemplated by itself alone. 

To this opinion, Mr. J, S. Mill has made what seems to be 
a conclusive reply: — 

" Notwithstanding," he says, " the universal consensus of the 
social phenomena, whereby nothing which takes place in any 
part of the opei'ations of society, is without its share of influ- 
ence on every other part, and notwithstanding the paramount 
ascendency which the general state of civilization and social 
progress in any given society must hence exercise over all the 
partial and subordinate phenomena, it is not the less true that 
different species of social facts are, in the main, dependent, 
immediately and in the first resort, on different kinds of 
causes, and, therefore, not only may with advantage, but must 
be studied apart, just as in the natural body, we study separ- 
ately the physiology and pathology of each of the principal 
organs and tissues, though every one is acted on by the state of 
all the others, and though the j^eculiar conditions and general 
health of the organism co-operates with, and often predomin- 
ates over, the local causes, in determining the state of any 
particular organ." 

36. The Obstacles which Political Economy Encounters. 
It is worth Avliile to note the obstacles which the economist 
encounters in his efforts to secure the popular recognition 
and acceptance of the laws of wealth, as he discerns them in 
his study of man and society. Two of these may be regarded 
as wholly peculiar in kind, or highly peculiar in the degree in 
which political economy encounters them. 



SFE CIA L OB S TA CLE S EN CO UN TERED. 39 

The first is well expressed by Prof. Cairnes : "Its close 
affinity to the moral sciences brings it constantly into collision 
with moral feelings and prepossessions, which cannot fail to 
make themselves felt in the discussion of its principles; while 
its conclusions, intimately connected as they are with the 
art of government, have a direct and visible bearing upon 
human conduct, in some of the most exciting pursuits of life," 
Archbishop Whately had in view the same obstacles to the 
popular acceptance of economic truth, when he remarked that 
the demonstrations of Euclid would not have commanded uni- 
versal assent if they had been applicable to the pursuits and 
fortunes of individuals. 

37. Another of the obstacles referred to is found in 
the fact that political economy has to do with affairs so 
ordinary and familiar that men, in general, feel themselves 
competent, irrespective of study or of special experience, to 
form opinions on almost every subject which the economist is 
called to discuss. The more closely men are concerned 
"\(fith any matter, the harder it is to maintain the authority of 
the learned body which assumes to engross scientific knowl- 
edge on the subject. It is difficult to persuade men that the 
acquisition of wealth is a mystery, or that the laws of its 
production and distribution require to be distinctly investiga- 
ted by experts and to be taught authoritatively to the masses, 
and even to men of affairs and of high position, as laymen. 

Few men are presumptuous enough to dispute with the 
chemist or mechanician upon points connected with the studies 
and labors of his life ; but almost any man who can read and 
write feels himself at liberty to form and maintain opinions of 
his own upon trade and money. 

Now, this is not wholly of evil. The plain common sense 
of unlettered men has not infrequently served as a valuable 
corrective to economical doctrines too finely drawn for the 
jjurjjoses of practical legislation, perhaps based uj)on a partial 
and dis]3araging view of human nature. But while thus, in 
the application of political economy to the art of statesman- 
ship, the self-assertion of the uninstructed mind has not been 
without its advantages, this disposition has certainly hindered 



30 POLITICAL ECONOMY. 

the due development of political economy as a science. The 
economical literature of every succeeding year embraces works 
conceived in the true scientific spirit, and works exhibiting 
the most vulgar ignorance of economic history and the 
most flagrant contempt for the conditions of economic inves- 
tigation. It is much as if astrology were being pursued 
side by side with astronomy, or alchemy with chemistry. 

38. A third obstacle which political economy encounters 
arises from the use of terms derived from the vocabulary of 
every-day life, such as value, exchange, wealth, rent, prof- 
its — with some of which are associated in the popular mind 
conceptions inconsistent with, or, at times, perhaps, antago- 
nistic to, those which are in the view of the writer on eco- 
nomics. Thus, as we have seen, the economist uses the word 
value in the single sense of power-in-exchange; while common 
speech makes everything valuable which is useful, desirable 
or meritorious, irrespective of the consideration whether, by 
reason of its scarcity or the difficulty of securing it, this or 
that article so spoken of confers upon its possessor the powe^' 
of commanding in exchange the labor, or the products of the 
labor, of others. 

The chemist, the geologist, the botanist, on the other hand, 
invents terms for the classes of objects or the classes of phe- 
nomena which he is to discuss. The reader carries with him 
into the discussion only the idea of the thing which the 
author has created for the purpose; and, if the writer be clear, 
and the reader be careful, there is no danger of a failure of 
understanding between the two. But, no matter how precise 
the one may be in definition, or how close the attention of the 
other, it is inevitable that the use, in economical discussion, 
of terras taken from the vocabulary of common life, should 
engender confusion, from the i^ractically irresistible tendency 
of the mind of the reader, and even, in a degree, of the 
writer, to slip back to the habitual meanings of the words 
employed. 

So strongly has this disadvantage pressed upon some eco- 
nomical writers, that they have been impelled to resort to 
strange and foreign terms to obviate the difficulty. Thus, 



ITS DEPARTMENTS. 31 

Archbishop Whatelj, treating political economy as the sci- 
ence of exchange, introduced the Greek word, Catallactics, to 
express the scoj)e of his enquiry; and Prof. Ilearn has given 
to his admirable book the name Plutology, to escape the 
vagueness of meaning which he thought he saw in the popu- 
lar use of the word wealth. 

39. The Departments of Political Economy. — All the 
questions of political economy are both conveniently and 
ap23roj)riately discussed under four titles : Production, Ex- 
change, Distribution and Consumption. 

Of late, a decided disposition has been manifested, on the 
part of many writers, in England and America, to drop these 
familiar titles; to decline to admit any departments in jjolitical 
economy, and to treat of production and distribution, e. g.^ as 
not separable in economic discussion. 

This disposition has unquestionably been stimulated, if, 
indeed, it has not been generated, by the wish to bring polit- 
ical economy into a strictly scientific form, with which the 
recognition of distinct departments has been deemed incom- 
patible. It may be doubted whether our knowledge of the 
laws of wealth has yet reached the degree of completeness and 
assurance which would allow a science to be constituted after 
the lofty ideal of these writers; and meanwhile there seems 
to me reason to believe that the abandonment of these familiar 
and useful terms, production, exchange, distribution, and con- 
sumption, has caused some very important considerations to 
be overlooked in recent economical discussions. "Noth- 
ing," said Edmund Burke, " is so great an enemy to accuracy 
of judgment as a coarse discrimination ; a want of such clas- 
sification and distribution as the subject admits of." Now, 
clearly, the subject, wealth, admits of being considered, first, 
with respect to the motives which lead to its production and 
the conditions under which production takes place ; secondly, 
with respect to the laws which govern the exchange of 
products in the market; thirdly, with respect to the forces 
which distribute the product of industry, in larger or smaller 
shares, among the several classes of persons who take part in 
production ; fourthly, with respect to the influence which the 



33 FOLiriCAL ECONOMY. 

different modes of consumiition exert upon the disposition and 
the ability to take jDart in the future production of "wealth. 

And if wealth admits of being considered in these several 
aspects, it seems to me clear that such a classification will con- 
duce both to completeness of view and to accuracy of judg- 
ment. We shall see, when we come to exhibit the relations 
of the Exchange- to the Distribution of wealth, a very striking 
instance of the mischief that has arisen from the neglect of 
this classification by recent writers in economics. 



PART II, 

PRODUCTION 



CHAPTER I 

LAND AISTD NATURAL AGENTS. 

40. What is the Production of "Wealth ? — By this term 
we signify all those acts and courses through which it comes 
about that an article confers upon its possessor the power, irre- 
spective of legal authority or personal sentiments, to com- 
mand in exchange for itself, the labor, or the products of the 
labor, of others. Briefly and somewhat elliptically, we may 
say, the production of wealth means the creation of values. 

This, of course, does not imply the creation of matter; it 
does not, of necessity, imply even a change of form in the thing 
which before had not value but now becomes f)ossessed of it. 

41. Modes of Production. — A distinguished German pro- 
fessor has classified values, in respect of their origin, as time- 
value, place-value and form-value. Thus, a cake of ice, which 
has no value in the winter may acquire value through being 
kept over, into the following summer. The keeping-over the 
ice from winter to summer, whatever of labor and care and 
expenditure of capital that may involve, is the production of 
wealth to that extent. The value thus created would be, in 
the phrase of Prof. Knies, time- value. Again, a cake of ice 
which has in summer a certain value in the country where it 
was first formed, say, Maine, would have a much higher value 
in a semi-tropical country, where water is seldom frozen at any 
season of the year, say, Louisiana. The transportation of 
the ice to such a country, and its protection from the melting 
heat of the climate, would be a further production of wealth. 
The value thus created would be, in the phrase of the writer 
already quoted, place-value. In neither this nor the former 
case has human labor been expended in effecting the forma- 
tion of the ice, which work was the gratuitous ©iteration of 

3 33 " 



34 POLITICAL ECONOMY. 

nature. The vast bodies of values created by commerce are 
mainly what would be termed place-values, the value created 
by labor in givino^ form to the articles concerned being but 
small in comparison. 

In the creation of form- value, there is the widest possible 
range of operations, mechanical or chemical, from that of the 
agriculturist, by whose intervention the black earth of the 
prairie is transmuted into golden grain, to that of the lace- 
maker, whose whole industry is to arrange his gossamer into 
fantastic shapes. However little the material may be wrouglit, 
and by whatever agencies that little may be effected, we say 
that wealth is produced whenever value is added or acquired 
through any act or any process. 

42. The Agents of Production. — The three primary agents 
in the production of wealth are Land, Labor and Capital. 

43. Land — The school of economists in France, prior to 
the revolution, who were known as the Physiocrats, insisted 
upon regarding land as the sole source of wealth. According 
to this school, of which the physician Quesnay was the foun- 
der, labor is incapable of creating value except as employed 
upon the soil. Agriculture is, therefore, the sole means of 
increasing the wealth of a nation. All applications of labor or 
capital in manufacture, in transportation or in trade, must be 
barren, since there is no net produce remaining, as in agricul- 
ture,* after the expenses of cultivation have been met. 

There was this much of truth in the physiocratic theory, 
that the raw material of all manufactures, the subject matter 
of all trade and transportation, comes originally from the 
soil; audits value cannot escape the influence of the great com- 
prehensive principle to which Ave give the name, "the law of 
diminishing returns in agriculture," the principle, namely, that 
after a certain stage of cultivation has been reached, the soil 
fails to yield a proportionally increased return to new appli- 
cations of labor and capital. Since, then, the law of diminish- 

* That Ibere is a surphis in agriculture, over the cost of production, is 
sufficiently proved by the payment of rent to the owner of land. See 
chapter on Rent. 



THE LA W OF DIMINISHING RETURNS. 35 

ing returns is so far-reaching and all-embracing that even 
the operations of trade and manufacture do not escape its 
influence, it requires to be stated here with great precision 
and fullness of illustration. There is no use in the reader 
passing beyond this point, if he does not master this principle, 
in all its bearings. He might just as well stop short here, for, 
as Prof, Cairnes has said, if this principle did not exist, " the 
science of political economy would be as completely revolu- 
tionized as if human nature itself were altered." 

44. The Law of Diminishing Returns in Agriculture.— 
In any given condition of the art of agriculture, there is a limit 
to the amount of labor and of capital which can advantageously 
be employed or expended upon a given area of land. If more 
labor be employed upon the land, each laborer will have to 
be content with a smaller quantity of produce at harvest. 
And in the same way, if more capital be expended upon the 
land, each dollar of capital — whether in the form of hoes or 
carts or oxen, will make a smaller addition to the crop of the 
year than a dollar expended before the point of diminishing 
returns was reached. We shall sufiiciently illustrate the 
principle, if we confine our view to applications of labor, 
assuming the amounts of cajjital to increase correspondingly 
with the number of laborers. 

Let us suppose that ten laborers, with a certain outfit of 
tools and implements, are engaged in cultivating, in common, 
a tract of land of a hundred acres, producing 2,000 bushels 
of wheat a year, being 20 bushels, per acre, and 200 bushels, 
per capita. ISTow, let it be supposed that two new laborers 
appear and join themselves to this company. What will be 
the crop of that year for the united twelve, assuming agricul- 
tural conditions constant? Will it be 2,400 bushels, or more, 
or less ? The answer to this question will depend on whether 
the point of diminishing returns had been reached with the 
original ten laborers, or not. If not, the crop of the new 
year might be not merely 2,400 bushels, but even more, say, 
2,500 bushels, since, the limit of the chemical capabilities of 
the soil not being reached, the mechanical advantages which 
result from the division of labor, to be explained under a 



86 



POLITICAL ECONOMY. 



subsequent title, would enable tlie twelve to raise more, per 
man, than the ten had done. 

But if the point of diminishing returns had been reached 
when the ten were laboring together uj)on the land, the new 
crop will fall short, much or little, of 2,400 bushels; and con- 
sequently, each of the twelve laborers will have to be content 
with less than 200 bushels. Let us suppose the crop to 
amount to 2,280 bushels, each acre producing 22.8 bushels 
against 20 bushels the year before. Each man will, then, re- 
ceive 190 bushels as his share at harvest. 

Now, on the latter assumption, let it be supposed that three 
additional laborers arrive, and are received on equal terms into 
the company. Will the crop now be 3,000 bushels, or 200 bushels 
per man of the fifteen ? Clearly not. Will it prove to be 
2,850 bushels, 28.5 bushels per acre, giving each man 190 
bushels as his share, as before ? Certainly not if the indus- 
trial character of the laborers and the knowledge of the art of 
agriculture undergo no change. If the twelve laborers make 
the 100 acres yield but 22.8 bushels per acre, the 15 can not 
make the same amount of land yield 28.5 bushels per acre. The 
crop will be something less than that: say, 27 bushels per 
acre, which would give each man but 180 bushels as his share. 

If, again, Ave suppose five additional laborers to join the 
company, the crop will not be 40 bushels per acre; as would 
be necessary in order to give each man 200 bushels a year, 
which the original 10 received, or 38 bushels j^er acre, as would 
be necessary in order to give each man 190 bushels a year, 
which the first 12 received; or even 36 bushels per acre, as would 
be necessary in order to give each man 180 bushels a year? 
which the first 15 received; but the croj) could not be forced 
by the labor of 20 laborers above, say, 32 bushels per acre, which 
would give each of the laborers IGO bushels a year. 







Total No. bushels 




No. of laborers. 


No. of buslicls 


ou the whole 


Each laborer's 




per acre. 


tract. 


share. 


10 


20 


2000 


200 


12 


23.8 


2280 


190 


15 


27 


2700 


180 


20 


o'2 


0200 


100 



THE LA W OF DIMINISHING RETURNS. 37 

In like manner, it Avould be found, that however far the 
accession of new laborers were carried, each new arrival would 
result inevitably in reducing the quantity of grain which each 
laborer of the entire body could obtain by a year's work. This 
reduction of \hQ per capita produce would go forward, at first 
slowly and afterwards rapidly, until the result would be 
reached, that, whereas the original company of laborers lived 
comfortably, or even luxuriously, on the fruit of their labors, 
the forty or fifty who had come to work on the same limited 
area would be found living wretchedly, pei'haps reduced to 
the verge of starvation, 

45._Now, about the universal application of this condition 
to agricultui-al production there can be no intelligent question. 
There is not an aero of land on the face of the earth on which 60 
and afterwards 120 bushels of wheat can be raised by the appli- 
cation, first of twice, and afterwards of four times the amount 
of labor needed to produce 30 bushels. At some time in the 
progressive cultivation of every field, sooner or later, accord- 
ing to the state of agriculture, a stage will be reached after 
which every successive increment of the product will be 
obtained only through a more than proportional expenditure 
of labor. And this condition applies, not only to the cultiva- 
ted field, but to grazing lands, to the mine, the forest and 
the sea. It governs the cost of producing fish and whale oil ; 
fuel and timber for manufactures; coal, iron and copper, for 
the furnace and the forge ; avooI for clothing, and the carcasses 
of cattle and sheep for food, though the operation of the 
principle is in some of these cases obscured by the accident 
of great discoveries of natural stores and reserves, or impor- 
tant inventions in the chemical or mechanical arts involved in 
the extraction of these articles for the use of man.* 

46.— The Law of Diminishing Returns in its Application 
to Manufactures. — Such is the law of diminishing returns 

* It has been shown that this principle of increasing difficulty, or of 
diminishing return, applies even to the harvesting of crops. Roscher 
quotes from Von Thunen a table showing the experience of agricultural 
laborers in attempting to gleau all the potatoes of a field. Supposing IflO 
scheffels to represeut the quautity grown on a given area, a single laborer 



38 POLITICAL ECONOMY. 

in agriculture. As has been stated, no part of the field 
of production but is overshadowed by this great dominating 
condition of human life and labor. Not only is the whole 
body of agricultural produce subject to its influence, but the 
raw material of all manufactures, and the subject matter of 
all trade and transportation, coming originally from the soil, 
are affected in value by the increasing difficulty which attends 
each successive increment of product. 

But while no part of the field of production lies beyond the 
shade of this primary condition, various classes of products 
are affected by it in very different degrees, according as they 
stand nearer to, or further from, agriculture or the purely " ex- 
tractive " industries. Thus, every product of iron is, in some 
measure, subject to the influence of this condition, for, if a 
greater and still greater quantity of iron ore is to be derived 
from a given number of known mines, this involves mining 
at a lower and still lower depth, w^hich, in turn, involves a 
greater expenditure of labor in hoisting, Aentilating, pump- 
ing, etc. But it is only the iron, as ore, or as an ore product, 
w^hich is subject to this condition. If a hundred weight of 
ore be rendered into pig iron, the cost of the latter will be 
very much increased by the necessity of mining at an in- 
creasing depth; but if the pig iron be taken to the forge or 
foundry, and there rendered into plate iron or stove castings, 
the cost of the latter will be enhar.ced but little if anymore, 
since the production of wealth, {i. e. the creation of values) 
by mechanical processes, is not subject to the law of dimin- 
ishing returns. Ten men in mechanical pursuits can produce 
ten times as much as one; a hundred can produce ten times as 
much as ten. If, again, the iron be rendered by successive 
processes into fine screws, knife-blades or watch springs, the 
first cost of the material becomes so small, in comparison 
with the cost of the labor expended in working and per- 

could gather 30 in a day. while the average of the first four laborers would 
be 20. But the fifth muu would gather only 6.6; the sixth man only 4.4; 
the seveblh man only 3, and so on, the last laborers not adding enough, 
in their attempt to thoroughly glean the field, to support them while 
working. 



THE LA IV OF DIMINISHING RETURNS. 39 

fecting it, that a very considerable proportional increase 
in the cost of raising the ore from the mine would have 
but a very slight effect upon the value of the finished 
product. 

Mr. Charles Babbage, in 1833, estimated that bar iron of the 
value of II became worth when manufactured into — 

Slit iron for rails % 1.10 

Hoi'seshoes 2.55 

Wood saws 14.28 

Scissors, best 446.94 

Penknife blades 657.14 

Now it is evident that the only part of the cost of the 
1657 worth of knife blades, here, which is affected by the con- 
dition of diminishing returns, is the original dollar's worth of 
bar iron, and the cost of the bushel or two of coal necessary 
to produce the mechanical power and the melting and tem- 
pering heat for the successive processes of manufacture. An 
increase of the difficulty of mining which should double the 
price of bar iron might not affect the price of scissors by so 
much as one per cent. 

47. So far, then, as human wants can be met through the 
elaboration of the raw materials taken from the soil, there is 
a constant tendency to a greater and still greater satisfaction 
of those wants, through the perfection of mechanical and 
chemical processes in manufacture. But, after all, the chief 
concern of the masses of the people is with the cost of the 
raw materials of food, clothing and shelter. The bulk of the 
consumption of the working classes is of coarse foi-ms of agri- 
cultural produce, very simply prepared. It is of no advantage 
to the laborer that at a small additional expense he can have 
his cotton Avrought into forms which a centuiy ago would 
have excited the admiration of a court, if all the cotton he 
can procure with his scanty means is not enough to keep him 
warm. 

48. The Soil, a Fund for the Endowment of the Human 
Race. — Subject always to the condition which has been de- 
scribed in the foregoing paragraphs, the soil, consisting of 
rock pulverized at one period or another of the world's ex- 



40 POLITICAL ECONOMY. 

istence, constitutes the sole* original endowment of the human 
race. The different varieties of soil possess the capability 
of rewarding human labor in very different degrees; but every 
kind of decomposed rock known to agricultural chemistry, 
will, if treated with due quantities of water, yield vegetables, 
grains or fruits for man's food, fibres for his clothing, timber 
to construct his house, fuel to warm it. Even the undecom- 
posed rock which forms the crust of the earth, constitutes a 
store from which liuman wants may be supplied, though in 
smaller degree and with greater pains. Metals and minerals, 
of an almost infinite number of uses, mechanical, chemical, 
physiological, are extracted by the aggressive enterprise of 
man from the very rock which has withstood unbroken all the 
effects of fire and frost, earthquake and torrent, from the 
very period of their formation. It is wholly upon this natu- 
ral endowment that the race have lived in the past ; and it is 
the extent of the endowment which is absolutely to deter- 
mine the maximum number which the race can reach, and the 
longest period of time through which the race can survive. 
Now, of this fund with which mankind are endowed, 
we note, in addition to the limited capability of production 
within a given season, upon a given area, which has been 
already dwelt upon, that the fund, in the j^resent state of the 
art of agriculture, is subject to waste and possible ultimate 
exhaustion. 

49. Exhaustion of the Soil.— Those writers who advocate 
what is known as the policy of protection, or, as they prefer 
to style it, the principle of national economy, ha^e made great 
use of the fact that the soil is subject to exhaustion; that its 
productive capabilities are, in the strict sense of the word, a 
fund from which so much and no more can be taken. Besides 
the outright destruction of fertility due to wanton abuse of 

* It may be thought that in speaking thus of the soil as the sole source 
of materials for the suslentation of man, we have overlooked the fact 
that the sea is capable of fiiruishiug a vast quantity of food. In effect, 
however, the nutriment which supports these marine forms of life is all 
derived from the soil which constitutes the bed of the ocean, or that 
which is brought down into it by the streams. 



EX HA USTION OF THE SOIL. 41 

nature, such as has been so well deisicted by our late represen- 
tative at the Italian court,* the ordinary prudent use of the 
soil for the purposes of human sustentation steadily dimin- 
ishes the fund of productive essences from which future gen- 
erations must draw their supplies of food, clothing and shel- 
ter. " For every fourteen tons of fodder carried off from 
the soil," says Prof. Johnston, " there are carried away two 
casks of jDOtash, one of soda, a carboy of vitriol, a large 
demijohn of phosphoric acid and other essential ingredients." 

But what becomes of the materials thus taken away ? 
Surely, if the doctrines of modern physical science are true, 
no force can be lost out of nature; consumption must be fol- 
lowed by production in other forms; or, rather, consumption is 
nothing but the production of new forms. 

It is true that no force can be lost out of nature; yet force 
may be transmuted from forms in which it ministers to hu- 
man wanto into forms in which it serves no purpose useful to 
man, as for example, when your house burns down and goes 
off into the air, in sudden heat and with a great smoke; or a 
certain amount of force may be so dissipated that men can 
no longer employ it for their advantage. There is undoubt- 
edly gold tc the amount of hundreds of millions of ounces 
in the United States which will never be extracted from the 
sand with which it is mingled, or the rock in which it is em- 
bedded, not because there is not gold enough, but because 
there is too much sand or too much quartz. In much the 
same way the productive essences taken from the soil, in the 
form of food for man and beast, may be so scattered as to be 
unavailable for the nourishment of vegetable life in the 
future. 

" Whenever," says Prof. R. E. Thompson, « the products 
of the soil are consumed in the vicinity of the farm, the far- 
mer will have at hand the means of making such a return 
to the soil as will keep up and even increase its fertility. But 
whenever they are transported to a considerable distance for 

* "The Earth as Modified by Human Action," by Hou. George P. 
Marsh. 



42 POLITICAL ECONOMY. 

consumption, the power to make an adequate return to 
the soil is seriously diminished, if not absolutely destroyed. 
The richest soil cannot long sustain such a process of exhaus- 
tion if its proprietors are engaged in sending its natural 
wealth over land and sea to a distant market." 

50. Free Trade and Exhaustion of the Soil.— It is upon 
this the protectionist bases his chief argument. He claims 
that local markets should be everywhere created to prevent 
what he calls "earth-butchery;" that the tendency to make 
new countries the magazines from which older countries draw 
their supplies of raw materials should be crossed and checked 
by legal impositions, not so much upon the exportation of 
the raw materials from the former, as on the importation of 
finished products from the latter; that, thus, every considera- 
ble community should be driven, against the impulses of 
immediate interest, to fashion for its own consumption the 
materials produced from its own soil. 

NoWj the most obvious and natural answer to this is, that 
men are the best judges of their own interests, and that pro- 
ducers and consumers should be left to make their bar- 
gains unhindered. But it will abundantly appeal', in the fur- 
ther progress of our enquiry, that the interests of individuals 
do not always consist with the interests of the community. 
This is clearly seen, in the case of the felling of forests, where, 
it is admitted, immense injury may be done to the soil, an in- 
jury perhaps that is practically irreparable through the sel- 
fish action of a comparatively few persons seeking their own 
immediate advantage. If the same is not true in an equal 
degree of the abuse of the soil, through an excessive drain 
upon its productive essences, due to the passion for sudden 
gain inducing the cultivators to take much from the ground 
and put back little, it is because, first, the arable land of a 
country is generally owned by a larger number of persons 
than the wood land, so that more of those who would suffer 
by the effects of an abuse of nature are in a position to pi*e- 
vent abuse, and, secondly, because the consequences of "earth- 
butchery " in the destruction of forests are more instant and 
less remediable than in the waste of the soil in cultivation. 



EXHA USTION OF THE SOIL. 43 

51. The liability to the exhaustion of the soil, through the 
exportation of its produce, upon which, as we have seen, one 
of the great arguments for protection is based, is a fact prop- 
erly to be taken into account. The importance which should 
be attributed to the fact is fairly a matter of question. I be- 
lieve the protectionist writers generally give it vastly more 
weight than it deserves, chiefly through omitting two considera- 
tions. First, that even the building up of manufacturing and 
commercial towns would not prevent a large part of the waste 
of the ingredients of the soil. In nearly all such towns 
when of considerable size, the excreta of men and even of 
animals, and, also, to a great extent, the refuse of kitchens 
and of manufactures, are thrown into the streams, and car- 
ried out to sea. The utilization of sewage, on any large 
scale, has never yet been made profitable. It has been done 
as a matter of experiment, as a matter of sentiment, or to 
prevent the defilement of rivers; but almost invariably it 
costs, in the present state of the mechanical and chemical arts, 
more than a hundred cents on the dollar's worth of soil- 
dressing obtained. Some waste of this kind seems insepara- 
ble from the human occupation of the earth. 

52. Secondly, the protectionist's argument overlooks the 
consideration that, in addition to the progress of invention, 
postponing, though it may not avert, the exhaustion of the 
existing soil, a continuous addition is being made to the soil 
available for the raising of food, through the decomposition of 
rocks and the formation of rockdust (weathering). The 
mountain loses of its substance by the force of frost and 
floods, and the valleys are enriched with the material thus 
worn away. Even the stones that lie in the earth, a mere en- 
cumbrance to cultivation, yield to the unceasing action of the 
elements that surround them and give up to the soil the same 
properties to which its pristine fertility was due. Moreover, 
the conversion of the nitrogen of the atmosphere into 
nitrates (nitrification), is continually going on, for the fer- 
tilization of the soil. " In rare cases," writes one of the most 
eminent of agricultural chemists, " these agencies alone main- 
tain a high state of fertility, as where red-rock easily disinte- 



44 POLITICAL ECONOMY. 

grates and is exceptionally rich in plant food, or where plains 
are fertilized by the matter brought from mountains and de- 
posited by streams. More commonly, these natural causes 
maintain a moderate productiveness only, and require tillage, 
irrigation and manuring to raise the jDroduction to a high 
pitch; tillage, irrigation and manuring all operating to accel- 
erate and intensify rock-disintegration and nitrification; irri- 
gation and manuring acting also by replacing removed mat- 
ters. 

" Any region that has once been fertile for a period of fifty 
years, under a given system of management, may remain fer- 
tile under that system forever, unless the soil is removed or 
buried by flood, or unless the climate becomes unpropitious."* 



CHAPTER II. 

LABOR. 

53. The Hunter State. — The second great agent in the pro- 
duction of wealth is human labor. Up to a certain low point, 
the grosser human wants are supjDlied by the bounty of na- 
ture. So long as this continues, value does not emerge; 
wealth is not produced. Man may live like the squirrels or 
the monkeys, from the sjsontaneous fruits of shrubs and trees; 

*Prof. S. W. Johnson, of Ytxle College, Director of the Connecticut 
Agricultural Experiment Station. 

Prof. Johnson further remarks: " The crops that astonish us by their 
heavy acreage-i'ield are not the crops that feed the nations. The wheat 
fields and corn fields of ' the West ' yield but 15 bushels of -wheat and 
but 40 to 50 bushels of corn. The bay, the pasturage, which make up 
the grand total of our forage, are obtained at an average rate of one 
ton, per acre. The 40 bushels of wheat, 90 of corn, 1\ tons of hay, that 
good farmers, in long cultivated regions, gather, per acre, from small 
areas, are exceptional. For these exceptional natural fertility, or nat- 
ural manuring, or else exceptional artificial fertilization are required; 
but for the agricultural production of the world " im grossen und 
gamen" small crops per acre, fed mostly by natural disintegration of 
the soil and natural nitrification, as by natural rainfall and natural sup- 
plies of carbonic acid and solar energy, are the rule." 



LABOR. 45 

or, like other large and fierce animals, lie may prey upon the 
smaller and weaker species, which, in their turn, are nourished 
without care, by grasses or nuts. So long, however, as races 
of men subsist in this fashion, they are doomed to remain few 
in numbers, low in character, subject to occasional visitations 
of famine, the victims of ferocious enemies among the higher 
orders of animals, or of internecine war in the unceasing 
struggle for existence. Political economy has no more to do 
with men in such a state than with the monkeys who compete 
with each other for cocoanuts and bananas. 

54. The Pastoral State.— Labor, in the economical sense, 
first clearly appears in the pastoral state. Here men no longer 
subsist on the bounty of nature, or perish miserably and help- 
lessly when that bounty fails. They no longer hunt for nuts 
and roots and fruits which have grown without care and with- 
out labor, or for casual animals nourished upon the spontane- 
ous products of the soil, and bred and reared without human 
intervention. In the pastoral state, tribes tame the cattle 
and sheep and goats and asses which once ran wild, and train 
them to be easily guided, handled and controlled ; care for 
their subsistence, driving them to fresh pastures, digging 
wells or diverting streams to give them a constant supply of 
water, even cutting the abundant food of summer and curing 
and storing it against the season of scarcity ; protect the 
animals they have tamed against those that still remain savage, 
and fold or house them against severe storms and protracted 
cold ; bleed and blister and physic them in sickness ; super- 
intend their breeding after their kind, and care for the young 
far beyond the power or the wisdom of the dam. By all these 
forms of labor, men in the pastoral condition make that to be 
wealth which in a state of savagery was no wealth. 

And of this social condition we note two things : First, 
population increases largely. It requires many thousands of 
acres to support a family of hunters ; as many hundreds will 
support a family of shepherds. The animal that in the one 
condition yielded, once for all, a carcass of three or four 
hundred pounds net, now returns, for the little care given her, 
five hundred gallons of milk every year, making, if the owner 



46 POLITICAL ECONOMY. 

pleases to expend some additional labor, three hundred pounds 
of cheese. Another animal that once yielded a carcass of 
fifty pounds, covered with a pound of coarse stiif hair, now parts 
every year with four or five pounds of soft flexible wool, sus- 
ceptible of being wrought into forms of the greatest beauty 
and usefulness. 

Secondly, the subsistence derived by communities in the 
pastoral state is not only more ample, allowing a tenfold in- 
crease of numbers, it is also far more secure than in the 
hunter state. Men are no longer subject to be swept by famine, 
as by a hurricane, from the face of the earth. In the main, 
subsistence, and with it existence, has ceased to be j^recarious; 
it has become constant and calculable. 

56. Agricultxire. — The next economical state is reached in 
agriculture. Man no longer skims the surface of the land; he 
plows into the depths of the soil, and brings up the vast pro- 
ductive energies that lay hidden far below the roots of the 
grass on which the cattle were wont to graze. And now, 
where hundreds of acres were required to support a family, 
as many score suffice. Population rapidly increases ; man 
and boast no longer wander to seek their food ; the food is 
brought to them ; tribes cease to shift their place from 
season to season as the exigencies of pasture demand ; the 
cottage replaces the tent ; new wants are felt, now that men 
are not obliged to carry around with them all that they own ; 
new and varied forms of wealth appear. Value is created on 
every hand by the use made of time that once Avas spent in list- 
less idleness, or by labor tliat has been released from its accus- 
tomed occupation through advances in the processes of produc- 
tion. To do only the things which formerly were done, would 
require less exertion, and consequently values tend to dimin- 
ish, since value measures, speaking roughly, the difficulty of 
attainment ; but more things now require to be done ; there 
are more who feel wants, and each of them feels more wants, 
than formerly, and hence the body of values increases, in the 
face of improvements in the arts which tend to substitute 
gratuity for value. 

57. The labor power of any community, whether in the pas- 



THE EFFICIENCY OF LABOR. 47 

toral or in the agricultural state, or in the higher state where 
manufactures and commerce enter, to further diversify pro- 
duction and complicate the industrial system, is compounded 
of two factors, that derived from the efficiency of the indi- 
vidual laborer, and that derived from what we call, by the 
somewhat unsatisfactory term, the division of labor, which 
embraces the joint action of men in production, the differ- 
entiation of productive processes, the specialization of trades 
and the organization of productive forces. 

58. The EflS-ciency of the Individual Laborer. — The de- 
gree in which the labor of an individual shall be efficient in 
the creation of values, i. e., the production of wealth, de- 
pends upon several causes. 

First : his inherited strength, his original endowment of 
physical force. This endowment varies greatly, not only as 
between individuals of the same community, but as between 
communities, nations and races. Into the causes of the dif- 
ferences in this respect existing, it is not necessary to enter. 
That enquiry belongs to the physiologist and the ethnologist. 
The economist has to do only with the fact. In the matter of 
sheer lifting-strength alone, the individuals of one race may, 
on the average, surpass those of other races by fifty, one hun- 
dred or two hundred per cent; while in the matter of the use 
of that strength, in operations at once difficult and delicate, 
the range of existing differences is very much wider. 

59. Relation of Food to Industrial EflB.ciency.— A second 
reason for the higher industrial efficiency of the laborers of 
one class or nation than belongs to those of another, is found 
in the quantity and quality of the food consumed by the 
laborers of the two classes or nations, respectively. The hu- 
man stomach bears much the same relation to the whole 
frame as the furnace to the steam engine. In the one, as in the 
other, must all the forces which are to drive the machine be 
generated. In the one, as in the other, the force generated will, 
within certain limits, increase with the material for combus- 
tion supplied. With more fuel, the engine will do more work. 
With more food, the man will do more work. 

But not proportionally more. To a great extent the return 



48 POLITICAL ECOAWiVY. 

made, in force, to the introduction of new fuel into the fur- 
nace, varies according to a principle which is strongly analo- 
gous to that which governs the returns made, in crops, to the 
application of new labor to land. Thus, if we suppose that, 
with a furnace of a given height of chimney, 3 lbs. of coal to 
the square foot of grate surface, are supplied, we should have, 
resulting from the consumption, a certain amount of force 
available to do the engine's work. But that amount would be 
small. A great part of all the heat generated would be lost 
by radiation in the tubes and through the cooling effect of 
the water in the boilers. Now, suppose that, instead of 3 
lbs., 6 are consumed. Will the efficiency of the engine be 
doubled, merely ? No, the engine will do easily three times 
as much work. If 9 lbs. are used, the power will be still fur- 
ther increased, not only positively but proportionally, that is 
there will not only bo more power, but more power for each 
pound of coal. If 12 lbs. are consumed, there may be a still 
further addition to the force generated, not only positively, 
but proportionally. It might easily be found that, with this 
amount of fuel, the resulting force would be, not four times 
as much as with 3 lbs., but six, or eight or ten. 

The j)arallelism which exists between the economy of ap- 
plying labor to land and the economy of supplying fuel to 
the furnace, is broken at one point. Labor may be applied to 
land indefinitely with an increase of absolute, though not 
always of relative, production. But coal cannot be added in- 
definitely, or for any long time to the fire beneath the boiler, 
with advantage. On the contrary, there is the possibility 
that mischief or destruction may result. 

The economy of supplying food to the human machine is 
in a high degree analagous. If, for example, a laborer were 
supplied with only 100 oz. per week, of a certain kind of 
food, the laboring power which would be generated by the 
digestion and assimilation of that food would be very slight. 
After a course of such diet, the man would crawl feebly to 
his task; would work with a very slight degree of energy 
when he first started out, and would soon become exhausted, 
even at that rate. AVere 125 oz. given to the laborer, he 



UNDER FED LABOR. 49 

would be able, with no greater strain on his constitution, to ac- 
complish an amount of work which would be not merely one 
quarter more, but lai'gely in excess of it. He would perhaps 
be able to do half as much more. Were his subsistence to 
rise to 150 oz. there would be a still further gain. His effi- 
ciency would bo to his efficienc}'', when receiving 125 oz., not 
as 6 to 5, but as 7, or perhaps 8, to 5. With 150 oz., the la- 
borer's diet might be regarded as sufficient for comfort, health 
and a reasonable development of muscular strength. Let the 
amount of food be carried up to 200 oz. and we should have 
a liberal, generous diet, ample to supply all the waste of the 
tissues, and to keep the fires of the body burning briskly, gener- 
ating force enough to allow the laborer to put forth great mus- 
cular exertions through long periods of time, and to reach 
perhaj)s the highest degree of efficiency. 

Up to a certain limit, then, with food as with fuel, the true 
economy of consumption is found in increasing the supply. 
Niggardliness is waste, and waste of the worst sort. But, 
just as there is a maximum limit with the fuel, so there is 
with food. After that limit is reached, the increase of food 
does not imply a proportional increase of force, if, indeed, 
any increase at all; and after a certain still higher point is 
reached, the increase of food brings mischief. 

60. Under-fed Laborers. — The consideration here pre- 
sented is of great importance in explaining the varying effi- 
ciency of labor. Probably the inhabitants of the United 
States constitute the only large population in the world who 
are thoroughly well-nourished; that is, who have, with excep- 
tions so few as not to require mention, enough of wholesome 
food to secure the greatest economy of consumption. " Many 
a French factory hand," writes Lord Brabazon, " never has 
anything better for his breakfast than a lai'ge slice of common 
sour bread, rubbed over with an onion, so as to give it a 
flavor." " Meat," says a careful observer, " is rarely tasted by 
the working classes in Holland. It forms no part of the bill of 
fare, either for the man or his family." Of the laborers of 
Belgium, an official report states: "Very many have for their 

entire subsistence but potatoes, with a little grease, brown or 
4 



50 POLITICAL ECONOMY. 

black bread, often bad; and for their drink a tincture of 
chicory." And even through large portions of happy- 
England, the fabled land of the beef-eater, there is a mass of 
unimpeachable testimony to show that the working classes 
are able to obtain less nourishment by far than is necessary 
to the highest efficiency of their labor. " To-day in the west 
of England," says Prof. Fawcett, "it is impossible for an 
agricultural laborer to eat meat more than once a week." 
Of the peasantry of Devonshire, Canon Girdlestone writes: 
*' The laborer breakfasts on tea-kettle broth — hot water 
poured on bread and flavored with onions — dines on bread 
and hard cheese, at 2d. a pound, with cider very washy and 
sour; and sups on potatoes or cabbage, greased with a tiny 
bit of fat bacon. He seldom more than sees or smells butch- 
er's meat." 

Now, as to the want of true economy in thus reducing the 
consumption of food among the working classes there cannot 
be a moment's question. The case may perhaps be best put 
by saying that if cattle were not kept better nourished than 
are the majority of laborers of the world, it would not "pay " 
to have cattle at all. It would be better to do without them 
entirely. Barely to keep them alive would require a large 
expenditure of food, and to give them, in addition to this, 
only enough to secure a low grade of muscular strength and 
activity, would not make them worth their keep. 

61. Influence of Sanitary Conditions on the Efla.ciency of 
Labor.— A third reason for the higher industrial efficiency of 
the laborers of one class or nation than of another, is found 
in the differing sanitary conditions, especially those which 
concern tlie quality of the air. The food wliich is taken into 
the animal system is converted into blood which is kept in a 
state of purity by being oxydizcd in the lungs, through the 
process of breathing. In this process, the foul and stupefying 
element, carbon, is thrown off into the atmosphere, and the 
life-giving element, oxygen, is taken into the animal system. 
That this may be done, there should be in all enclosed habita- 
tions, a sufficiency of space to each person and a free access of 
unpolluted, or, as it is called, fresh, air. Human beings con- 



UNSANITARY CONDITIONS. 51 

fined in small and unventilated rooms inevitably lose vigor; 
the process of the oxydation of the blood being checked, the 
process of making blood, through the digestion and assimila- 
tion of the food taken into the stomach, is also checked. 
With foul air, therefore, a smaller amount of muscular force 
is generated from the same amount of food. Not only so, 
but the food taken into the system may become an actual ob- 
Gtruction and cause of disease, through the failure of diges- 
tion and assimilation. Moreover, in close rooms, unventilated 
and uncleaned, the germs of certain diseases, known as filth- 
diseases, viz., typhus and typhoid fevers, scarlet fever, diph- 
theria and others, are preserved and readily communicated, 
to the impairment of health and the destruction of life. 

62. The cause here adduced is not of slight importance in 
accounting for the differences in the labor power of different 
communities and nations of men. 

As the people of the United States are the best nourished, 
so they are, by a long interval, the best sheltered people in 
the world. It is impossible for an American Avho has not 
traveled widely, to form an adequate conception of the man- 
ner in which the laborers of other countries are housed. " Hov- 
els, cellars, mere dark dens," wrote Mr. Inglis, of the city 
homes of Ireland, in 1834, " damp, filthy, stagnant, unwhole- 
some places." 

Ill 1861, one-third of the population of Scotland lived in 
houses of one room only; another third in houses of two 
roomSo In England, the character of the country cottages 
and of the dwellings of the poorer classes in' the cities is 
even worse than in Scotland. Cases are not infrequent where 
families of 7 to 13 members occupy a single bedroom. 

Of the cottages of Devonshire, Canon Girdlestone says: 
" they are, as a rule, not fit to house pigs in." The cottages 
of the County of Durham were thus described by the Poor 
Law Commissioners of 1842. " The average size of these 
sheds is about 24 by 16 feet. They aro dark and unwhole- 
some; the windows do not open, and many of them are not 
larger than 20 feet by 16; and into this space are crowded 
eight, ten or even twelve persons." 



53 POLITICAL ECONOMY. 

If this is the way Englishmen have to live in the country, 
we might expect to hear worse things of the towns, where 
land is sometimes worth as many silver crowns as would 
cover its surface. Mr. Edwin Chadwick declares that more 
filth, worse physical suffering and mental disorder than John 
Howard described in his account of the prisons of his day, 
are to be found among the cellar population of the working 
people of Liverpool, Manchester, or Leeds, and in large por- 
tions of the Metropolis. 

It is in homes like these that the greater part of the present 
laborers of the world were born and reared to such manly 
size and strength as such unfavorable conditions would ad- 
mit. And it is in homes like these, that, in their estate as 
laborers, they have to live, to eat, to rest and to sleep after 
the exhausting toil of the day. It is not to be wondered at 
that children grow up puny and deformed; that scrofula 
and rheumatism become deeply seated in the constitution; 
that the blood grows foul and the pulse feeble; that the efii- 
ciency of the laborer falls to a low i^oint, Avhile his power to 
labor at all becomes liable to be prematurely terminated. 

63. The Laborer's Intelligence. — A fourth reason for the 
superior efficiency of the laborers of one class or nation over 
those of another, is found in their higher intelligence. Intel- 
ligence is a most powerful factor in industrial efficiency. I 
speak not now of technical knowledge, but of clearness of 
mind, quickness of apprehension, strength of memory, and 
the powder of consecutive though^, in no more than the degree 
in which these may fairly be expected to be found in a 
nation where popular education exists and has existed for 
generations; in the degree, for instance, in which they are 
found in New England, in Saxony, in parts of Scotland. 

The intelligent is more useful than the unintelligent la- 
borer: 

(a) Because he requires a far shorter apprenticeship; he 
can learn his trade in a half, a third, or a quarter the time 
which the other requires. (A) Because he can do his work 
with little or no superintendence; he is able to carry instruc- 
tions in his mind, and to apply them with discretion to the 



INTELLIGENCE IN LABOR. 53 

varying conditions of his work, (c) Because he is less waste- 
ful of materials. In some branches of manufacture the 
value of the materials used is equal to the amount paid in 
wages. In others it is twice, thrice, and even ten times as 
much. In such branches of manufacture as these, a very 
little difference in the degree of thoughtf ulness, foresight and 
regard for instructions exercised by the laborer, may make a 
great difference in the net product; that is, the value of the 
product after the value of the materials has been deducted. 

64. (cT) Because he readily learns to use machinery, how- 
ever delicate or intricate. The extent to which labor is saved 
and power increased by the use of machinery hardly needs 
illustration here. It is only the intelligent workman Avho 
can freely avail himself of this great help. Brains are not 
alone required for the invention of machines ; they are 
required for their adjustment, their ordinary use, and their 
occasional repair. He who is to use a machine need not be the 
same man as he who made it; but, to a great extent, he should 
be the same kind of man. 

The capability of dealing with costly and delicate ma- 
chines varies greatly between different races and nations of 
men. Notwithstanding the prodigious increase in the power 
of producing cotton goods, through the inventions of Watts, 
Arkwright, and Sitgreaves, it is estimated that nearly as 
much cotton is spun or woven by hand, the world over, to- 
day, more than a hundred years after these great inventions, 
as is spun or woven by machinery. In some of the countries 
of Europe, as Turkey and Greece, the ordinary " mechanical 
powers," the screw, the lever, the inclined plane, etc., are 
used but little, or not at all, in mechanical operations, the 
lifting or pulling being done by direct physical force, at, of 
course, the expenditure of a vast amount of animal strength. 
Even in highly civilized nations the application of agricultural 
machinery is limited by the inability of the peasantry to use it 
intelligently and judiciously. The Judges of the World's 
Fair, of 1852, reported that there was probably as much 
sound, practical labor-saving invention and machinery unused, 
at that time, as was used; and that it was so far unused. 



54 POLITICAL ECONOMY. 

"solely in consequence of the ignorance and incompetence of 
the work people." 

The United States is the only country in the world, except- 
ing some of the English colonies, in which it can be safely 
assumed of the average laborer that, after a reasonable period 
of exiDeriment and trial, he will be able to use delicate and 
costly machinery to the advantage of his employer. In all 
other countries, even the most civilized, it is only picked 
laborers who can use intricate machinery without doing more 
damage than their labor is worth. 

65. Cheerfulness and Hopefulness in Labor.— A fifth 
reason for the higher efficiency of the laborers of one class or 
nation than of another, is found in greater cheerfulness and 
hopefulness, growing out of higher self-respect and social am- 
bition and a more direct and certain interest in the product of 
industry. 

The first three causes which have been adduced are purely 
physical, affecting the laborer's muscular force and capability 
of endurance. The fourth cause adduced, viz. : the labor- 
er's general intelligence, determines his intellectual qualifica- 
tion for his work, his ability to direct his bodily powers, such 
as they are, to the production of wealth, with the maximum of 
effect and the minimum of waste. The cause noAV adduced 
is moral, affecting the will. 

The importance of this cause is most conspicuously seen in 
the wastefulness and inefficiency of slave labor. Always and 
everywhere, that labor has been found to be vastly inferior to 
the labor of freemen. Even the stimulus of the lash fails to 
command the faculties which instantly spring into activity un- 
der the inspiration of an ample reward. Fear is far less po- 
tent than hope in evoking the energies of mind or bcd}^, while 
efforts made under the influence of the foi'mer passion are 
far more exhausting than those made under the influence of 
the latter. 

Even among free laborers, the degree in which the physical 
and intellectual jiowers may be engaged in the production of 
wcaltli depends greatly on the directness and certainty of the 
reward. This is proved by the difference every where observed 



THE LABORER'S INTEREST IN THE PRODUCT. 55 

between the exertions of wage laborers and those of men work- 
ing on their own account. The wage laborer necessarily be- 
comes, in a greater or less degree, a time server, an eye pleaser. 
He saves himself as much as he can ; he carefully counts his 
hours; he measures the work he does in return for the pay he 
receives. But more than this, a laborer not merely will not, 
he cannot, the laws of human nature remaining the same, work 
as hard for another as he "would if working as his own man. 
On the other hand he who is working for himself, keeps no 
grudging account of his time or exertion. If the proprietor 
of Igtnd, he knows that every stroke of his arm is creating 
wealth which he and his children are to enjoy; that every straw 
saved is his own. He Avatches against waste with unfailing 
eagerness. His vines, his plants, his animals, his fences, his 
buildings, are borne upon his mind; and no care or pains are 
withheld to guard them against the almost infinite forms of 
injury which beset these species of wealth. He is early afield, 
for the day is not long enough for all he wishes to do; and 
when night falls, he still lingers, tying up his vines, tinkering 
his sheds, tending his cattle, bringing home the harvest. Even 
beyond the mere love of wealth, of what can be bought and 
sold, enters the love of his land, which is his own, which 
was his father's, which shall be his son's after him; and he 
works upon it, sparing himself little more than does the mother 
when caring for her child. " Give a man the secure posses- 
sion of a bleak rock," said Arthur Young, "and he will turn 
it into a gai-den." The vineyards of the Rhine, built up, in 
many cases, of earth brought in baskets up the steep sides 
of the mountains, are speaking witnesses to the truth of this 
saying; while many of the richest fields of Holland and Bel- 
gium, once wastes of drifting sand, illustrate that other say- 
ing of the eminent traveler: "the magic of property turns 
sand into gold," 

66.— Doubtless much of the indolence which we have 
been accustomed to regard as constitutional with certain races 
and nations of men, and as indicating lack of physical endiir- 
ance or feebleness of will, is due simply to the absence of 
incentive, resulting from unjust laws or bad social institutions. 



56 POLITICAL FXONOMY. 

It would be enough to make one laugh to hear the Scotch 
spoken of as lazy. The energy and jierseverance of that peo- 
ple have been illustrated in every quarter of the globe. Yet, 
three or four generations ago, the Scottish people, says Prof. 
Hearn, "were conspicuous for their incorrigible indolence." 
The ample explanation was found in the almost universal sys- 
tem of short leases or of tenancy at will,Avhich deprived the cul- 
tivator of all assurance that his labor in improving the land 
would profit himself. A single wise act of legislation cured 
this defect; and with the system of short leases and tenancies 
at will disappeared the laziness of the Scotch people. 

Not half so long ago as that, the Irish were a }n'overb over 
Europe, for indolence and shiftlessness in labor. Arthur 
Young describes them as " lazy to an excess at work," but 
" spiritedly active at play." The Iiishman of that day was 
spiritedly active at jjlaj', because the fun Avas sure to be bis 
own, and there were no laws or institutions whicli I'obbed 
him of his sport. He was lazy to an excess at work, be- 
cause laws, social proscription and customs relating to land, 
kept from him a large part of the natural fruits of his 
labor. Every country of the globe has Avitnessed, since 
1850, the indomitable pluck and energy of the Irish at work 
under equal laws and with a "fair chance." 

67. The Varying Efficiency of Labor, — I have indicated 
the chief causes Avhicli influence the efficiency of the indi- 
vidual laborer in the production of Avealth. The joint effect of 
all these causes is very considerable. Industrial operations 
conducted upon a large scale have shown that Avide differ- 
ences exist in the Avorking power of men of different nations. 
In comparing the cost of constructing railroads in India and 
in England, for instance, it Avas found that, though the In- 
dian laborer received but 4.} to Cd. a day, and the English 
laborer, 3s. to 3s. Gd., the sub-contracts in the two countries 
Avere let at the same prices. Tlie English cotton sj^inner is 
paid as many shillings as the East India spinner gets pence ; 
yet the cotton cloth of England undersells that of India in 
the Indian markets. As betAveen England and Russia, it is 
found that a weaver in the former country tends from two to 



THE DIVISION OF LABOR. 57 

three times as many looms, as in the latter, the English 
looms, moving, moreover, at a higher rate of speed. 

As between England and France, the superiority of the 
labor of the former country has been repeatedly shown in 
great competitive experiments. Mr. Brassey states that, in 
the construction of certain French railways, it was found 
that the working capacity of the Englishman was to that of 
the Frenchman as five to three. Sujjerior as are the workmen 
of England to those of other countries of Europe, they are, in 
turn, surpassed, on the average, by those of the United States, 
in the respects of strength, intelligent direction of force, and 
ability to use machinery to advantage. 

68. The Division of Labor. — The second factor of the 
labor power of a community is that which is commonly called 
by the unsatisfactory term, division of labor, embracing, as 
was said on an earlier page, the joint action of men in pro- 
duction, the differentiation of productive processes, the special- 
ization of trades, and the organization of industrial forces. 
The term, organization of labor, is perhaps the best single 
term that can be used to cover all this ground. 

In primitive society the division of labor does not exist, or 
it is found only in a rudimentary state. Each able-bodied 
man does pretty much all which any man in the community 
does. Each builds his own wigwam or hut, shapes his own 
bows and arrows; cares for his own horses, if he have any, 
and hunts or fishes in his own right and name. Yet, even 
here, the division of labor as between the sexes is in some 
degree carried out. The women make the nets, weave the 
blankets and cook the food, as duties more suitable to their 
powers. Soon, however, emerges a division of labor founded 
on differences of capability less fundamental than those of 
sex. The smith appears, working at first alike in iron, wood 
and stone. He does all the Avork of this class which the com- 
munity requires; and, in return, receives flesh and fish for his 
own use from the hunters and fishermen whose speai'S and 
hooks are sharpened and pointed at his forge. As the amount 
of this class of work to be done increases, three smiths, in- 
stead of one, come to be employed; one working in iron, one 



68 POLITICAL ECONOMY. 

in wood, and one in stone, known respectively as the black- 
smith, the carpenter and the mason. As the wants felt by the 
community are multiplied, as modes and fashions appear, new 
classes of artisans come into existence, each working on some 
one class of substances, or making some one class of articles. 
The cabinet-maker follows the carpenter; the jeweler the 
blacksmith; the sculptor, in time, the mason. Finally, the 
operations of each trade come to be distributed among dis- 
tinct classes of laborers. Adam Smith states that, in his day, 
sixteen different workmen took jDart in the production of a 
single pin. The manufacture of cloth is divided into a score 
of separate services. 

69. How the Division of Labor Increases Production. 
It is difficult adequately to appreciate the increase of produc- 
tion which results from the application of this princiiDle. 

(a) It shortens apprenticeship. If each man had to learn the 
whole of a trade, much more to learn several trades, he would 
have to take a great deal of time and sj)oil a great deal of 
material and many tools in doing so. Indeed if he under- 
took to learn all about many trades, he would be likely to die 
before he had become fairly proficient in any. But Avhen each 
workman is required to learn but a single trade, and, within 
that trade, to practice only one simple oj^eration, consisting, 
perhaps, of a single motion, the period of instruction becomes 
very brief. The end of a few months, it may be of a few 
weeks, finds him intelligent, if not expert, in his business. 

{l}) It develops dexterity. Long after the workman has so 
far mastered liis trade as to be able to perform its operations 
without mistake, he continues to gain in productive poAver, 
through the incessant repetition of his task. The sense es- 
jDCcially concerned in liis work, be it sight, or touch, or hear- 
ing, becomes preternaturally acute; the muscles brought espec- 
ially into play gain in size and activity; even certain organs 
may become involved in tlie operations of the trade, and un- 
dergo changes which, whether favorable to the general health 
and symmetry, or not, are of a nature to facilitate the 
customary Avork. Any one who watches a cashier counting 
notes, a telegraph operator sending messages, or even a child, 



THE DIVISION OF LABOR. 59 

after a thorough drill, playing upon a piano, can see how 
wonderfully jDractice must come into industry, to make per- 
fect the workman. 

70. (c) It obviates the loss of time and the distraction of 
thought which would be involved in passing from place to 
place, and in laying down the tools of one trade to take up 
those of another. In agriculture, where, by the nature of 
the case, the division of labor can be carried but a little way, 
we know a great deal of time is thus lost. 

\d) It facilitates invention and leads to the discovery of 
improved processes and new materials. Practiced thus in de- 
tail, every art or trade is studied in detail, and, one by one, 
here a little and there a little, its mechanical possibilities 
come to be seen and realized. Some of the most conspicuous 
discoveries in the history of industry have, indeed, come 
through scientific research, or by casual suggestion ; but an 
infinite multitude of inventions and improvements in pro- 
cesses, accomjDlishing, in their aggregate effect, an incredible 
gain to the productive power of mankind, have been the re- 
sult of the minute study of the operations of industry, in detail, 
by men, each of whom was dealing with a single class of 
substances, performing a single oj)eration, with the aid, per- 
haps, of a single tool. 

(e) It allows women and children, as well as men who are 
suffering from some partial disability, to find places in the 
industrial order where they can labor to advantage; while 
among men of full powers, it assigns to each that work 
which is best suited to his individual capacity. " The master 
manufacturer," says Mr. Babbage, "by dividing the work to 
be executed into different processes, each requiring different 
degrees of skill or of force, can purchase exactly that pre- 
cise quantity of both which is necessary for each process; 
Avhereas, if the whole work Avere executed by one workman, 
that person must jDossess sufficient skill to perform the most 
difficult, and sufficient strength to execute the most laborious 
of the operations into which the work is divided." 

71. Tlie Territorial Division of Labor. — This is a phrase 
devised by an English economist during the great popular 



60 POLITICAL ECONOMY. 

agitation which preceded the repeal of the Corn Laws, to ex- 
press the carrying out of the principle of the division of 
labor, Avhich we have thus far contemplated in operation 
among the individuals of a community, to communities and 
nations. The phrase intimates that the vast industrial advan- 
tages which attend the application of that principle within 
the hamlet and throughout the county, will accompany that 
princijsle in its extension oa' er the whole field of the world's 
production, both agricultural and mechanical. This is the 
main, indeed, we may say the sole, economical argument in 
favor of Free Trade, as opposed to what is called Protection. 
The claim to freedom of trade as a " natural right " is not 
one of which the economist can properly take account. On 
the other hand, the arguments of the protectionist, based on 
the political importance of the industrial self-sufficiency of 
the nation, and on the alleged social and intellectual advan- 
tages resulting fi'om a diversification of national industry, are 
equally out of his Aaew. 

Inasmuch as the protectionist plea for limiting the territo- 
rial extension of the principle of the division of labor, includes 
a claim that the creation by law of industrial entities corres- 
ponding to existing political entities, has an influence, not 
only upon the production, but also upon the distribution, of 
wealth (which department of our enquiry we have not yet 
reached), and as the whole question of protection or free- 
trade is bound up with purely political and sociological con- 
siderations, it has seemed best to postpone the remarks we 
have to make upon that question to Part VI, " Some Applica- 
tions of Economical Principles." 

72. The Organization of Industry.— But the advantages 
which are derived immediately from the division of labor, 
are but a part of the total advantage Avhich is attributable to 
what we have termed the organization of industry. In addi- 
tion to those already indicated, we find, under the larger title, 
a vast gain of productiAC power resulting from the introduc- 
tion of the princii)le of conipetition, tlic creation of esprit de 
corps, and the direction given to tlie mass of unthinking and 
uninformed laborers by the few clear, strong spirits, which, 



THE ORGANIZA TION OF INDUSTRY. 61 

under such a system, dominate the entire industrial opera- 
tions of the community. 

{a) Competition can only be introduced as an active force 
where the opportunity for exact and easy comparison of re- 
sults exists. Where each one of a number of persons is per- 
forming every day a large number of miscellaneous duties, 
now a little of this, then a little of that, it is difficult or 
impossible to measure the achievements of the several persons 
so em^^loyed, bring them to a scale, and assign credit or 
blame according as each is found to have done more or less in 
a given time. But when those duties are so distributed that 
each person is charged with the performance of a certain, de- 
finite task, comparison becomes possible. When we say that 
^A has made 100 of this particular article, while B has made 
120, and C not less than 150, we at once reach a measure of 
the respective capabilities of these three laborers. 

It is largely to the trotting of horses over the graded and 
measured course, that we owe the amazing reduction, within 
a single human generation, of the traditional time, 2:40, to 
2:10. Mere random fast driving, over casual courses, of un- 
known lengths, and on roads of A^arying ease or difficulty, 
would not have effected that reduction in twice or thrice that 
period. - ♦ 

{V) The creation of esprit de corps within trades and pro- 
fessions becomes a tremendous force in industry. Competi- 
tion operates upon the laborer, through the employer's desire 
to get the most out of each workman, in return for his 
wages, and through the laborer's desire to obtain and retain 
employment. The principle now invoked operates on the 
laborer, perhaps not less powerfully, through the public senti- 
ment of the craft, establishing standards of workmanship 
and laws of conduct which tend to lift each workman to the 
level of the best. 

73 (c) Mastership in Industry .—But the most important of 
the sources of gain in productive power, now under considera- 
tion, is found in that mastership of industry which is created 
by the division of labor. That division cannot proceed to its 
natural limits without giving rise to the subordination of the 



63 POLITICAL ECONOMY. 

mass of the laboring population to a select and compara- 
tively small body of employers, who assume the responsibili- 
ties and direct the agencies of production. Whether this 
gain is accomplished at a certain social and political cost, 
is a question the economist is not called upon to discuss. 
That question belongs to the social philosopher or the states- 
man. The economist, as such, is guilty of an unwarrantable 
presumption if he undertake to measure the quantity of eco- 
nomical advantage which would offset the smallest ethical or 
physiological injury. He does all that he is called upon to do, 
all that he can undertake to do without impairing the scien- 
tific value of his results, when he traces causes to their effects 
within the field of economics, alone. 

Looking at the matter in its purely economical aspect, it is 
clear that this gain is not realized without an initial loss, inas- 
much as the laborer, under the wages system, necessarily has 
a less direct and certain interest in the product of his indus- 
try, than the man who labors on his own account. But this 
loss is compensated, many times over, by the gain to produc- 
tion which results from the impulse and direction given to 
industry by the thought-power and will-power of the best 
minds in the community. 



CHAPTER III. 

capital: its okigin and office. 

73. The third great agent in the production of wealth is 
Capital. The capital of a community is that part of its 
wealth (excluding land and natural agents considered as unim- 
proved*) which is devoted to the production of wealth. 

Some writers, indeed, insist that the climate of a country, 
so far as it especially favors production, is to be reckoned 
as a part of the capital of that country. I prefer to say 
that the beneficent distribution of heat and moisture by 
the gratuitous action of nature, is a favorable condition of 

* The reason for this exception will appear when we come to treat of 
the rent and price of land. 



THE ORIGIN OF CAPITAL. 63 

production, but is not capital. A sound system of jurispru- 
dence, which secures tlie impartial administration of justice; 
a sound organization of the political body, which maintains 
peace and order, are most favorable conditions of production ; 
they lead to a vast creation of values; they are better than 
much capital to the people enjoying them; but they are not 
capital. 

74. The Origin of Capital. — The origin of capital is so fa- 
miliar that it need not be dwelt upon at length here. A very 
simple illustration may suffice. Let us take the case of a 
tribe dwelling along the shore, and subsisting upon fish 
caught from the rocks which jut into the sea. Summer and 
winter together, good seasons and bad, they derive from this 
source a scanty and precarious subsistence. When the fish 
are plentiful, the people live freely, even gluttonously. 
When their luck is bad, they submit to privations which in- 
volve suffering, reaching sometimes the pitch of famine. 
Now let us suppose that one of these fishermen, moved by a 
strong desire to better his condition, undertakes to lay-by a 
store of fish. Living as closely as will consist with health 
and strength, he denies himself all superfluity, even at the 
height of the season, and by little and little, accummulates 
in his hut a considerable quantity of dried food. This is 
Avealth. Whether it shall become capital or not depends 
upon the use which is to be mjkde of it.* If destined to be 
merely a reserve against hard times, it remains wealth; but 
does not become capital. 

But our fisherman, in laying-by his store of fish, has higher 
designs than to equalize the food-consumption of the year. 
As the dull season approaches, he takes all the food he can 
carry, and goes into the hills, where he finds trees Avhose bark 
can be detacihed by sharp stones. Again and again he re- 
turns to his work in the hills, while his neighbors are pain- 
fully striving to keep themselves alive. At the end of the 
dull season, he brings down to the water a canoe, so light 

* " All labor expeaded for a distant end falls under the head of capi- 
ital." — RoscHER. 



64 POLITICAL ECONOMY. 

that it can be borne upon his shoulders, so buoyant that he 
can paddle in it out to the " banks " which lie two or three 
miles from shore, where in one day he can get as many fish 
as he could catch from off the rocks in a Aveek. 

The canoe is capital ; the fisherman is a capitalist. He 
can now take his choice of three things. He may go out in 
his canoe and bring home supplies of fish which Avill allow 
him to marry and rear a family in comfort, and with his sur- 
plus hire some of his neighbors to build him a hut, their 
women to weave him blankets, and their children to bring 
water from the spring, and wait upon his family; or, secondly, 
he may let out the canoe to some one who will be glad to get 
the use of it on payment of all the fish which one family 
could fairly consume, and himself stay at home in complete 
idleness, basking in the sun, and on stormy days seeking ref- 
uge in his comfortable hut; or, which is perhaps most likely, 
he may, thirdly, let out the canoe, and himself turn to advan- 
tage the knowledge and exjjerience acquired in its construc- 
tion, by making more canoes. Again and again he will re- 
appear ujDon the shore, bringing a new canoe, for the use of 
Avhich a score of his neighbors will clamorously comi^ete. 
And later canoes, be it noted, are made at a smaller cost of 
effort and sacrifice on tlie part of the builder. He has be- 
come familiar with the groves where the trees are largest, 
and the trunks most clear of branches; he has acquired a 
knack which makes it ahnost a i:)leasure to strip off the vast 
rolls of tougl), elastic bark; he never spoils his half-completed 
work, now, by a clumsy movement or an ill-directed blow. 
Moreover, his })ersonal toil is reduced to a minimum, for 
he has hired men to carry his burdens, and do all the heavy 
labor. 

75. The Increase of Capital.— But soon the canoe-builder's 
profits are tlireatened. Thus far, in the possession of excep- 
tional skill aiul knowledge, lie has been a monopolist, and has 
rca])cd a niono])olist's gains. Now, however, stimulated by 
the sight of such great Avealth gathered (that is, so great a 
command of other people' s labor acquired) by one man, others 
begin to enter the field. As an essential condition, each must 



THE INCREASE OF CAPITAL. 65 

save and accumulate enough food to support him while mak- 
ing his first boat, that is, m.ust accumulate a certain amount 
of capital. This, however, is less difficult than it was in the 
case of the original boat-builder, first, because fish have come, 
through the multiplication of boats, to be much more easily- 
obtained; secondly, because, with good models of boats before 
him, the new builder has fewer experiments to make; thirdly, 
because certainty and neai'ness of success will inspire the 
labors of ten men where any one will be moved to great sacri- 
fice and exertion by a prospect that is distant and doubtful. 
Moreover, some of the shrewdest of the assistants of the old 
boat-builder, who have watched him at woi'k, and whom he 
has trusted more and more to do even the nicer parts of his 
task, begin to desert him and to set up for themselves. The 
rent of boats falls rapidly; the old master, who has become 
rich and self-important, and perhaps a little lazy with years, 
goes out of the business. 

For a time, while the number of boats increases rapidly, the 
quality suffers deterioration; two fishermen are drowned upon 
the banks by the breaking-up of boats in a sudden squall. 
The boat-builders in fault are condemned by the general 
assembly of the tribe to support the widows and orphan chil- 
dren. The rage for mere cheapness is checked. Boats are 
now tested before they are used, and two or three ambitious 
builders find themselves driven out of the trade by the loss of 
patronage consequent on the failure of their work. And it is 
to be noted that the profits of boat-building are rapidly re- 
duced. The first boat built repaid the cost of its construc- 
tion in a few weeks. The boats now made only repay the 
cost of their construction in the course of months. Yet, the 
men who make boats still get a better livelihood than those 
who use them; while those who use boats get a better liveli- 
hood, even after paying the rent, than those who still fish off 
the rocks. 

76. Now let us suppose that the manufacture of boats has 
proceeded so far that there is one serviceable boat for every 
four adult males of the tribe. At this point, one of two 
widely divergent courses may be adopted, with very impor- 



66 POLITICAL ECONOMY. 

tant results to tlie future of the community. First, the mul- 
tiplication of boats goes forward until each man is provided 
with a boat in which he can catch enough fish, in two or three 
hours, a day, to keep him and his family, summer and winter, 
good seasons and bad. The creation of capital has at least 
led to this good result : it has put famine out of the question. 
There is always an abundance of fresh fish, on the banks, and 
of cured fish, even in the meanest hut. The rest of the time 
is spent by the members of the tribe in idleness or sport' as 
they gambol among the waves like the fish on which they live, 
or lie basking in the sun upon the shore. Secondly, the manu- 
facture of boats stops at the point where fish for the whole 
tribe can be provided by one-fourth its members, toiling early 
and late upon the banks. The remaining members, those who, 
througli youth or self-indulgence or vicious habits, have failed 
to provide themselves with boats, tbose who through misfor- 
tune have lost their boats and have become discouraged, 
those who, by physical weakness or natural or acquired in- 
firmity are least fitted to undertake the rugged duty of the 
fisherman, and those who have been intimidated by tales or 
by experience of hardships, or by the sight of the bodies of 
drowned fishermen rolled ashore by the black waves after a 
storm, these all betake themselves, in one capacity or another, 
to the service of the fishermen, the capitalist-employers of the 
tribe. Only so many boat-builders remain as are needed to 
repair and keep up the existing stock. The house-builder now 
takes the place of the boat-builder; no one is satisfied to live 
in the sort of hut which a generation ago would have been 
thought good enough for the chief. Menial servants become 
very numerous. The fashioning of ornaments and ti'inkets 
takes up a vast amount of labor. 

77. New Economic Desires.— Soon a new want emerges. 
A plant with bright flowers is discovered among the hills, and 
brought home as a curiosity. It is raised, as a rather distin- 
guished thing, in front of houses of especial pretension. By 
cultivation it undergoes more or less change, particularly in 
the development of large tubers which are found to be highly 
palatable and nutritious. The absurd name, potatoes, is applied 



THE LA W OF CAPITAL. 67 

to these tubers. As affording a change from the everlast- 
ing sea-food of the fathers, they are relished greatly, and soon 
a large number of persons are breaking up ground to plant 
and cultivate these tubers, which are exchanged, on liberal 
terms, for fish taken on the banks. 

The introduction of a vegetable diet marks the beginning 
of a revolution in the life of the community. After this, 
anything is possible. The taste for a diversified diet, once 
felt, knows no limits. Agriculture has begun, involving the 
necessity of caj^ital in a hundred forms. New foods are 
followed by new fibres; manufactures spring into being, and 
all the potentiality of the modern nation now resides in the 
tribe which a generation ago lived wholly on fish caught from 
rocks along the shore. 

78. The La"w of Capital. — It is not necessary to trace fur- 
ther the increase of capital. At every step of its progress, cap- 
ital follows one law. It arises solely out of saving. It stands 
always for self-denial and abstinence. At the first beginning, 
savings are made slowly and painfully; and the first items of 
capital have a power in exchange (an ability, that is, to com- 
mand the labor of those who have not capital), corresponding 
to the difficulty with which they are secured. The bow, the 
spear, the canoe, the spade, much as they cost, pay for them- 
selves in a few days. Subsequent increments of capital are 
gained at a constantly diminishing sacrifice,* and receive a 
constantly diminishing remuneration, until, in the most ad- 
vanced countries, buildings are erected and machines con- 
structed which only pay for themselves in ten, twelve or even 
twenty years. 

At every stage, we note, too, that capital releases labor power 
which was formerly occupied in providing for the wants of 
the community according to its then prevailing standard of 
living. At every stage, the members of the community make 
their choice, whether they will apply the labor power thus re- 



* Prof. Marshall remarks that the whole continent of Asia, with its 
thousand millions of inhabitants, has less power of saving than 
England has. 



68 POLITICAL ECONOMY. 

leased to the production of wealth, in other oranches, or will 
content themselves with living as well as before, upon easier 
terms, giving up the newly acquired leisure to idleness or 
sport. 

79. Subsistence. — The office of capital has been j^erhaps 
abundantly shown in the account given of its origin. Capital, 
as we have seen, is that portion of wealth* which is employed 
in the jDroduction of new forms of wealth. 

At first, capital is limited to the means of subsistence for the 
producer. It was not easy in the first stage of industrial pro- 
gress, to lay-by enough of the game or the fish of one season 
to last until the next. For want of such a store of food many 
a tribe perished ; many another was kept in a low, miserable 
condition, unable to shift its seat to more promising locali- 
ties, and continually depleted of its laboring strength by 
famine and disease. But when once a tribe, by reason of ex- 
ceptional good fortune, or through prudence and self-control 
in the use of its scanty resources, acquired a reserve sufficient 
for a full year's subsistence, it became in a degree master of 
its conditions. It could shift its seat to better hunting or 
fishing grounds, if such existed; it could pursue its avocations 
systematically and economically, doing that which should be 
esteemed most productive in the long run, not, as before, hur- 
riedly and wastefully, under the stress of immediate want; the 
physical strength of its members was kept at the highest 
point by ample and regular diet. 

An ample year's subsistence forms the most important ad- 
vance which a people ever make in their progress towards 
industrial prosperity. No subsequent step costs one-half, or 
a tithe as much. Many peoples never find themselves able 
quite to accomplish this. The people of British India can 
hoi^e for no more, in good years, than to be carried through 
into the next; while, once in every four or five years, a fam- 
ine following a short crop sweeps away millions by sheer 
starvation, or by the fevers which feed upon half-famished 
populations. Even in Ireland, there was known, half a century 



*Excliuling land iiiul ualural agents, considered as unimproved. 



THE FORMS OF CAPITAL. 69 

ago, a period two or three months long, preceding harvest, 
which was called by tlie peasantry the " starving season." 

80. Tools. — The next purpose, in logical, and generally, also, 
in historical order, for which capital is accumulated, is the ac- 
quisition of tools. I use the word tools here in its largest 
sense, including all apparatus, utensils and machinery. The 
knife, the bow, the spear, the canoe, the net, are the tools 
of a certain stage of industrial society; the spade, the 
cart, the plough, the distaff, the forge, are the tools of a later 
stage; the loom, the lathe, the printing press, the trip-hammer, 
the railroad and the ship, may, with equal propriety, be called 
the tools of to-day. The buildings which protect machinery 
from the weather, and the shops in which trade and manufac- 
tures are carried on, are, in this sense, tools. 

81. Materials. — The third form which capital takes is that 
of Materials. The word, as here used, covers all kinds of 
wealth which are devoted to the production of wealth in any 
other way than as subsistence for the laborer while engaged 
in production, or as tools to increase his power in production. 
In a primitive state of industrial society, materials play a 
very small part. The bait for the hook among the tribe of 
fishermen; the corn which is saved for seed, in a planting 
community, are the most prominent materials of early indus- 
try. In a later age a large part of all the accumulated wealth 
of a community exists in this form. Ultimately, indeed, 
these materials "will be wrought partly into tools, partly into 
the means of subsistence. A part, also, may come to be de- 
voted to purposes of luxury or display, and, hence, cease to 
be capital at all. But at any given time, the capital of a 
community may be classed under these three heads: Subsist- 
ence, Tools, Materials. 

82. The Three Forms of Capital- — In a certain sense these 
three may be resolved into one. Subsistence; as, indeed, all 
tlie forms of subsistence itself may be resolved into one, 
Food. Thus, the first simple tools of the barbarous commu- 
nityraay be said to be exactly represented by the subsistence 
which was required by the laborei'S engaged in making the 
tools. The first materials which were produced by the aid of 



70 POLITICAL ECONOMY. 

these tools may be said to be likewise represented by the sub- 
sistence of the laborers using the tools, added to that of the 
laborers who made the tools. And so, of the more elaborate 
tools and the more various and costly materials of after ages: 
all may be said to rej)resent the subsistence of the laborer 
while engaged in the act of production. And all the forms 
of subsistence, food, clothing, shelter, and fuel, may, in theory, 
be reduced to one, food. The clothing of the laborer, for ex- 
ample, represents the food which he consumed while he was 
gathering the fibres of the wild grasses and weaving them 
into a blanket. The hut represents the food consumed dur- 
ing its erection; the fuel represents the food consumed while 
the laborer was gathering fagots in the forest. 

One of the advantages of this classification is, that it di- 
rects the attention to the part performed by tools, machinery 
and apparatus, in the production of wealth. Look into many 
text books on Political Economy, and you will find caj)ital 
spoken of as if its main, or even its sole ofiice, were to fur- 
nish subsistence to the laborer. Thus, Prof. Fawcett in his 
chapter on " The Requisites of Production " says : " the 
laborer must be fed. How can he be fed but by food which 
has been previously accumulated ? This food, too, required the 
application of labor ; therefore, since the laborer must be fed 
by previously accumulated food, a third requisite of pro- 
duction is suggested, for some of the results of past labor 
are required to be set aside to sustain the laborer whilst pro- 
ducing. The third requisite of production, therefore, is a 
fund reserved from consumption and devoted to sustain 
those engaged in future production. This fund is termed 
capital." In opening his chapter on " Capital," Prof. Faw- 
cett defines capital in precisely the same terms. Yet two 
nations may be equally provided with subsistence, while the 
superiority of one of them in the possession of tools may 
give it a prodigious advantage over the other in the poAver of 
producing wealth. One man with simple tools may do the 
work of ten men equally well fed, but having only their hands 
to work with. Ten men with the wood-Avorking, cotton and 
wool -working, or metal-Avorking machinery of to-day, run by 



PRODUCTIVE CAPABILITY. 71 

steam or water power, may easily do the work of a thousand, 
with distaff, chisel, saw and axe. 



CHAPTER IV. 

THE PRODUCTIVE CAPABILITY OF A COMMUNITY. 

83. We have spoken, in succession, of land power, labor 
power and capital power. The productive capability of any 
community is determined by these three elements, in the 
degrees in which they are severally found to exist there. 

While the land remains in the condition of increasing re- 
turns, as in the Eastern States of the American Union during 
their earlier history, production may be large, per head of 
population, with but a small amount of capital available. 
Even after cultivation has reached the condition of diminish- 
ing returns, the energy, intelligence and skill of the laboring 
class, and the thorough organization of industry, may wrest 
a comparatively high rate of produce from the reluctant soil; 
or, in spite of an ignorant, clumsy and spiritless population, 
as in the west of England, the concentration of a vast capital 
upon a naturally rich soil may yield large returns, long after 
the same stage of cultivation has been reached. 

Where all three conditions are found favorable to produc- 
tion, i. e., fertile lands not yet fully taken up by settlement, an 
intelligent and energetic laboring population, with abundant 
capital, as in the opening up of parts of our Western 
States within the last thirty years, and notably in 
the development of Minnesota and Dakota now going on, 
the rate at which wealth grows appears almost fabu- 
lous. Surely, inevitably, however, the increase of popu- 
lation will bring about the condition when an increasing labor 
power and capital power must struggle with a decreasing 
capability of the soil. Mechanical inventions, chemical dis- 
coveries, may long postpone the diminution of the per-capita 
product ; all improvements in the industrial character of 
the working classes, or in the organization of labor, enable a 



73 POLITICAL ECONOMY. 

larger population to be supported without reduction in the 
quality of their subsistence; but not the less is the power of 
one of the factors of production steadily on the decline. 

This principle applies, be it observed, only to the per-cap- 
ita product. The absolute quantity produced increases con- 
stantly with every increment of labor or capital judiciously 
applied to the land. There never comes a time when more 
laborers will not produce larger harvests. There never comes 
a time when additional capital introduced into agriculture 
cannot secure for itself some return, 

84. Such is the condition under which the earth is cultiva- 
ted by human labor, for the supply of human wants. The 
production of wealth by mechanical processes is, however, as 
we have seen, subject to this condition only so far as relates 
to the materials employed in manufactures, all of which are 
derived from agriculture. The mechanical processes them- 
selves are subject to no such drawback. On the contraiy, 
the increase of population for a considerable period allows 
the division of labor to take place more fully, with the result 
of enlarged production; hence the multiplification and diver- 
sification of conveniences and refinements, so far as they 
involve no increase in the amount of material consumed, may 
be carried forward literally without limit. Labor and capi- 
tal here act with prodigious force, not, as we might say, by 
addition, but by multiplication, each step rendering every 
successive step easier, as the force of habit and invention 
give to production a constantly accelerating rate of move- 
ment. 

85. Productive capability being thus determined by the 
three elements which have been stated, the greatest question 
which the economist has to answer, the most difficult, the 
most important question, in economics, is, why the actual pro- 
duction of wealth in any community falls so far short of its 
productive capability. But this is a question which cannot 
be finally answered till tlie reader has been taken through 
all the departments, by turns, of economic science. It is not 
until the economist reaches the department of consumption, 
that he can show how the use which is made of wealth may 



INDUSTRIAL STRUCTURE. 73 

vraste the capital j)Ower of a community, or may impair its 
labor power through the effects of vicious indulgence upon 
muscular strength and upon the will of the laborer. In the 
department of distribution, again, we shall see how the 
division of the product of industry, among the several persons 
and classes of persons engaged in production, may become so 
imequal as to work great and permanent injury to those who 
find themselves at disadvantage in making their claim for 
their share of the product; and how the disputes and misun- 
derstandings relating to that division often seriously reduce 
the amount to be divided. In the department of exchange 
the economist meets the question in a special form, namely, 
what is the cause of those occasional stoppages of production 
which are known as crises, or " hard times," when the wheels 
of industry move with painful slowness, and the Avealth 
which has been gathered in preceding periods is wasted in an 
inactivity from which all classes suffer, and yet for which no 
one seems accountable, since all are, or profess to be, ready 
and desirous to work, while the land power, the labor power, 
and the capital poAver' of the community remain unimpaired. 
Under each of these titles, thus, we shall find something by 
which to explain the phenomenon that the actual produc- 
tion of every commercial and manufacturing country, taking a 
term of years together, falls so far below the possible produc- 
tion, as to afford scarcely an intimation of what the wealth 
of the community might be under the full and harmonious 
operation of its land powei-, its labor power, and its capital 
power. 

86. Industrial Structure. — Even under the present title, 
production, we have to note a liability which besets the pro- 
ductive power of a community arising from what we may 
term its industrial structure. By this term is intended that 
organization of the capital power and the labor power of a 
community, which makes the productive cajDability of the 
whole depend, in a greater or less degree, upon the character 
of individuals or classes of individuals, and, in consequence, 
upon accidents affecting the fortunes of such individuals or 
classes. This is a matter w^hich is far too little regarded 



74 POLITICAL ECONOMY. 

in reasoning about the wealth of nations and communities. 
Writers in economics are apt to speak of the labor power 
and the capital power of a community, as if they were aggre- 
gates of pure force. No reference is made to structural or- 
ganization. Complete homogeneity and the highest mobility 
are assumed for the whole labor-mass and the whole cajiital- 
mass. 

In such a way of looking at labor power and capital pow- 
er, we lose sight of the possibilities of great losses to pro- 
duction arising out of two conditions, 

87. {n) Partial Immobility of Capital and Labor.— In all 
advanced industrial societies, labor and capital become com- 
mitted to certain courses, from which they can only depart 
after much delay, against great resistance and at heavy cost. 
We have seen how vast is the increase in productive power 
which is caused by the division of labor, the differentiation 
of industrial functions, the specialization and localization 
of trades and the organization of the productive forces. 
But precisely according to the chances of gain resulting here- 
from, is the risk of loss in the case of mistake or misad^'enture. 
The artisan who has learned a trade becomes comparatively 
helpless if the ojDportunities for working at that trade are taken 
away; llie factory hand who has learned to perform only one 
oi^eration out of the multitude that go to tlie spinning of a sin- 
gle yard of cloth, can do little if he be thrown out of the place 
where that operation is to be performed in immediate connec- 
tion with all the others. In theory, the artisan or the factory 
hand may turn to some other field of production, and soon 
acquire the knowledge and the manual skill required in some 
new art or trade; but the observation of large populations, 
througli long periods, shows that such readjustments of spe- 
cialized labor demand more energy and enterprise than are 
possessed by most laborers, occupy a great deal of time, at 
the best, and involve no small waste of labor jjower. Not in- 
frequently that readjustment is not fully accomplished in tlie 
generation that first feels the necessity for it; but the popula- 
tion or class of laborers upon whom this demand for a 
change of j^lace or of occupation is made, j)rove imequal to the 



MISDIRECTION OF INDUSTRIAL FORCE. "^S 

task, lose hopefulness, courage and self-respect, and by a slow 
decline sink into pauperism, squalor, vagabondage and vice, 
too often, indeed, transmitting tainted blood and tainted 
minds to the generation that follows. 

88. ip) Misdirection of Labor and Capital.— Capital power, 
and, in jserliaps a greater degree, labor power are in the hands 
of individuals whose peculiarities of character, of habitude, 
of station, seriously modify the application of cajjital and 
labor to production; whose mistaken aims, whose erroneous 
• impulses, may divert these forces from the object which we 
have supposed them to be seeking with an unremitting and 
an unmistaking attraction ; whose accidents of fortune may 
impair the energy of the industrial movement, or paralyze it 
completely. 

The most familiar illustration we could use is that of a 
factory whose master has suddenly died. The labor power 
remains ; the capital power remains ; but the spring that set 
them in motion is broken. It may happen that a son, or a 
partner, of equal ability, will at once step forward to take up 
the burden that has fallen from the nerveless hands; or it 
may be, on the other hand, that a long period of embarrass- 
ment Avill result, during which labor and capital will stand 
idle. Perhaps the loss will never be made good; an incompe- 
tent person succeeds by right of relationship; bad manage- 
ment dissipates both the accumulated wealth and the reputa- 
tion of the establishment; and, at last, after a dreary strug- 
gle to maintain solvency, the stock and fixtures are sold, the 
factory is dismantled, and the operatives go forth in all 
directions to find employment elsewhere as they may. There 
is many a thriving town in N ew England, whose only reason 
for growth, through fifty years, from small beginnings, has 
been found in the accident of the birth there, and the long 
life, of a single energetic, able, careful man of business. 
There is many a " deserted village " whose decay dates from 
the sickness or death of one man, out of the many hundreds 
who thronged its streets. 

So difficult is the control and direction of capital and labor, 
that a distinct class is called into being, in all industrially 



76 POLITICAL ECONOMY. 

advanced communities, to undertake that function. This class 
is known as the employing class, or, to adopt a word from the 
French, the entrepreneur class. 

89. The Entrepreneur Class. — Mastership is essential to a 
large and varied production. The industrial enterprises of 
the civilized states could not have been brought to their 
present height without mastership, and could not be main- 
tained at that height one year without it. Whatever may be 
true of politics, the industry of the world is not tending to- 
wards democracy, but in the opposite direction. In its first 
stages, the division of labor does not necessarily imply the 
introduction of the master-class. When the forms of j)ro- 
duction are few; when the materials are simple; when only 
hand-tools are used; when each artisan working at his bench 
makes the whole of the article to be marketed; when styles 
are standard, and the consumers of his product are found in 
the immediate neighborhood, perhaps within range of his 
personal acquaintance, the need of the master is, not felt. But 
when the hand-loom gives way to the power-loom; when the 
giant factory absorbs a thousand petty shops; when many 
persons, of all degrees of skill and strength, are joined in 
labor, all contributing to a result which perhaps not one of 
them comprehends i^erfectly or at all, when machinery is 
introduced which deals with the gauzy fabric more delicately 
than the human hand, and crushes stone and iron with more 
than the force of lightning; when costly materials require to 
be brought from the four quarters of the globe, and the pro- 
ducts are distributed by the agencies of commerce through 
every land; when fashion enters, demanding incessant changes 
in form or substance to meet the caprices of the market, the 
master becomes a necessity of the situation, not alone to 
enforce discipline through the body of laborers thus brought 
under one roof; not alone to organize these j^arts into a wbole 
ancl keep every part in its place, at its proper work; not alone 
to furnish technical skill, and exercise a general care of the 
vast property involved; but beyond these and far more than 
these, to assume the responsibilities of production, to decide 
what shall be made, after what patterns, in what quantities. 



MASTERSHIP IN IND USTR V. 77 

at what times; to whom the product shall be sold, at what 
prices, and on what terms of payment. The armies of industry- 
can no more be raised, equipped, held together, moved and 
engaged, without their commanders, than can the armies of war. 

90. Those conditions of production which bring to the 
laborer the necessity of finding a master under whom he can 
work, bring to the man of superior abilities and acquirements, 
the oj^portunity to emploj'-his poAvers f or the greatest economi- 
cal advantage of society and for the greatest profit to himself. 
In a community where division of labor has proceeded but a 
little way, the man of intellect moves but one pair of arras. 
In a highly organized industrial system, he moves a thou- 
sand. The vast difference in production which is wrought 
by the introduction of intelligence, forethought and skill, 
becomes multiplied just to the extent to which the principle of 
mastership is carried. One man Avho has the genius to plan 
may easily find a host of helpers, each of whom can execute 
his schemes nearly if not quite as well as he himself individ- 
ually could, who yet would have been wholly helpless and 
amazed in the presence of the exigencies, the difficulties, the 
dangers, which only arouse the spirit of the master, stimulate 
his faculties, and afford him the keenest zest of enjoyment. 
Certainly, if we look only to the largest production of wealth, 
that would seem to be the ideal state in which the muscu- 
lar power of the whole mass of laborers should be directed 
by the brain-power and the will-power of the strongest and 
clearest minds of the community. 

91. But whether we regard this as the ideal state or not, 
whether we rejoice or repine at the extension of the principle 
of mastership in industry, it is the most characteristic fact 
of the industrial sj^stem of to-day; and is likely to gain rather 
than to lose importance in the years to come. 

During the great moral and political fermentation, which 
brought on the Revolution of 1848, the attention of social 
reformers in France was called to the possible benefits of 
co-operation,* being an industrial system in which master- 

*Here, and in this immediate connection, by co-operation is meant the 
scheme of dispensing with mastership in mechanical industry; arrange- 



78 POLITICAL ECONOMY. 

ship should disappear, as the cure for a large part of the evils, 
having an economical origin, which afflict society. Not a few 
of the English economists, and, following them, American 
economists generally, have been led to take up co-operation 
as a practicable scheme which only needs to be tried to work 
the most beneficent and far-reaching results. Doubttess this 
view is held honestly and sincerely. But it exhibits a lack of 
practical knowledge concerning the organization of industry 
and the operations of commerce, which is astonishing. So far 
from it being true that the abolition of mastership is at present 
feasible, there never was a time when the distance between 
the man and the master was so wide as it is to-day. Nay, the 
distance between the mere superintendent, or overseer, on the 
one hand, who thoroughly understands the technicalities of 
production and has all the ability required for executing or- 
ders, for enforcing discipline among the working force, and 
for keeping the machinery of the mill smoothly running, and 
the real master, the organizer and energizer, on the other, is 
greater to-day than it ever was before; and that distance, so 
far as I can judge, tends continually to increase. The possi- 
bilities of gain or of loss were never so great as now; the 
choices and decisions essential to the conduct of business were 
never so frequent or so difficult; the difference in the pro- 
duct, which results from the difference between the able and 
the inferior management of affairs, was never so great; the 
toleration offered to the commonplace in industry, was never 
so small. 

92. Possibilities of Industrial Damage Involved in the 
Entrepreneur System — While the entrepreneur system be- 
comes, thus, an agency of the highest efficiency in increasing 
the productive power of a community; is. indeed, the condition 
Avithout which the industrial enterprises of modern society 
could not exist, it will be seen that it involves the possibility 
of industrial disasters commensurate with the forces it sets 

iiieiits for buying groceries, provisions aud other articles of personal con- 
sumption, at wholesale, aud dividing them among the slmrehoidcrs, in 
order to save the charges of the retail dealer, fall under the title of dis- 
tributive, or, better still, consumptive co-operation. 



INDUSTRIAL MISADVENTURES. 79 

in motion. Just as the accidents of the railway are more de- 
structive and fearful than those of the wagon road, so do the 
catastrophes of modern production exceed, in their wreck of 
fortune and waste of capital, all that is possible under the 
less ambitious organization of productive agencies characteris- 
tic of an earlier state of industrial society. The mistakes of 
the man who controls a thousand workmen are multiplie'd a 
thousand fold. 

And those mistakes will not be infrequent. There has been a 
manifest tendency in economical discussion, to exalt, beyond 
reason, the industrial character of those who control the en- 
terprises of modern society, as if they were almost freed from 
human infirmity. The " omniscience of capital," by which is 
meant the omniscience of those who control the uses of capi- 
tal, is a not unfamiliar phrase. 

It is a fact that, while the entrepreneur class in any com- 
munity where competition is searching, and bad laws or bad 
money do not diminish responsibility for errors or weakness 
in the conduct of business, consists generally of strong men, 
not only does that class contain many persons who by the 
accident of fortune have come into the control of the agencies 
of production without the necessary qualifications, and who 
habitually mismanage and misdirect those agencies, to the 
lowering of the general scale of productiveness in the commu- 
nity; but also that the ablest men of business fall far 
short of the ideal standard which is erected for them in 
economical literature generally, as indicated in the phrase just 
quoted. Not to speak of intellectual failings, the infirmities 
of the will, even among the bravest and best, are such as to 
make it a matter of course that no small part of the industrial 
power placed in the hands of the entrepreneur class will be 
misdirected. Thelserfect temper of business is found in few 
men: oscillations between recklessness, on the one hand, and 
over-cautiousness, on the other, constitute the rule, while 
absolute self-poise is the rare exception. 

93. Destruction of Wealth. — Another cause which requires 
to be mentioned, as in a degree accounting for the failure of 
industrial society to accumulate wealth and maintain a pro- 



80 POLITICAL ECONOMY. 

ductive capability corresponding to the theoretical efficiency 
of the three primary agents of production, land, labor, and 
capital, is the actual destruction of wealth by accident or 
convulsions of nature. The losses by fire alone in the United 
States probably exceed a hundred millions of dollars a year, 
if structures only are considered; while were we to add the 
damage to crops and forests, the sum of wealth consumed by 
this fearful agent would be greatly increased. Hurricanes 
and storms and floods annually waste and destroy no incon- 
siderable portion of tbe products of human skill and toil. 



PART III. 
EXCHAIN^GE. 



CHAPTER I. 

THE THEORY OF VALUE. 

94. Exchange as a Department of Political Economy.—- 

We have seen that there is a decided tendency among recent 
writers to abolish the familiar departments of political econ- 
omy, severally known as production, exchange, distribution and 
consumption, as interfering unduly with the simj)licity and per- 
hajas with the dignity of the science they have chosen to culti- 
vate. Even, however, of those Avho have retained certain of 
these titles in their treatises, there is a general consent at 
least to abandon exchange, as a department of political 
economy.* 

I am disposed to think that this general abandonment of 
exchange, as a distinct title in political economy, is due to a 
confusion of exchange with trade or commerce, viewed as 
strictly productive agencies. It is seen that the most of what 
is done in trade or commerce, pertains to the production of 
wealth; the labor emj)loyed in jDacking or baling goods, in 
transporting them to market, in opening and exposing them to 
sale, is engaged in the production of wealth, equally with that 
employed in raising the raw materials from the ground, or 
fashioning them into merchantable shapes. Values are created 
as truly in the one case as in the other. Even the labor of 
the clerks and salesmen is productive labor as much as that of 
the artisan or the agriculturist. The horses and Avagons, the 
locomotives and cars, the shops and warehouses, of trade and 
commerce are strictly productive agencies. 

*To this Mr. Mill forms a couspicuous exception. He not only makes 
exchange, as distinguished from production and from distribution, the 
subject of one of the books of his Political Economy, but he postpones 
to that point his discussion, \vc might say, his definition, of value. 
6 '81 



82 POLITICAL ECONOMY. 

What is it, then, that need be considered under the title 
exchange? What is left, after production has been fully 
treated ? Why should this department of political economy 
be retained ? 

Under the title exchange, in a systematic treatise on i^olitieal 
economy, I would consider the Ratios of Exchange, the terms 
on which goods, commodities, articles possessing value, items in 
the sum of wealth, exchange for one another. We are here 
called to answer the question : " Why does so much of this 
commodity exchange for so much of that?" 

Such a question, it appears to me, can best be treated apart 
from the exposition of the physical conditions under which 
wealth is produced (as, for instance, the efficiency of the division 
of labor, or the diminishing productiveness of land under suc- 
cessive applications of labor and capital); apart from the dis- 
cussion of the forces by which the product of industry is dis- 
tributed (in wages, interest, profits, rent), among those who 
have jointly contributed to it; apart, also, from the question, 
what effects lapon the future production of wealth will be 
wrought by giving one direction, or another, to the consumption 
of the existing body of wealth. Under the title exchange, 
therefore, we enquire concerning any two articles which 
have been produced, no matter whether with the mechanical 
advantages resulting from the division of labor, or against the 
increasing resistance to production offered by the chemical 
constitution of the soil; whichhave, perchance, been distributed 
among the parties contributing to their production, and which 
are surely tending to their consumption; concerning any two 
such articles brought together in the market, we enquire on 
what terms they will exchange ; how much of one will be 
given for so much of the other. 

95. Exchange Arises out ot the Division of Labor.— 
The occasion for exchange clearly arises out of the division 
of labor. Were all persons engaged in the same productive 
avocations, there would be no inducement to exchange. To 
barter fish for fish, or bread for bread, would be simply a 
waste of time and energy. It is because men first divide in 
production tliat they afterwards unite in exchange. It would 



EXCHANGE. 83 

be easy to conceive a community in which each producer should 
be engaged in precisely the same work as every other, each 
raising from the ground or making by the labor of his hands 
all that he were to eat, drink or wear. In such a situation, 
all that has been said of the causes of the varying efficiency of 
individual laborers would hold good; all that has been said con- 
cerning " diminishing returns in agriculture," all that has been 
said of the origin and office of capital, would still hold good. 
But there would be no actual exchange, because there would 
be no division of labor. 

Let, however, the production of the individuals of a com- 
munity be varied by ever so little, the occasion for exchange 
may and probably will arise. If one agriculturist raise wheat, 
another rye, another potatoes; and if others raise, some cattle, 
some sheep, some swine, the products will soon begin to be 
exchanged, and the question will arise, how much wheat shall 
be given for a bushel of rye or potatoes; how many sheep or 
swine for an ox? Let the principle of the division of labor be 
carried further until a score or a hundred of mechanical arts 
and trades and half a dozen learned professions come to be 
recognized, and the occasions for exchange will rapidly ex- 
tend to a large part of the entire productions of the commu- 
nity. The farmer may still consume a half* of his own corn 
and beef and potatoes, but the smith will scarcely consume the 
product of his own labor for three days in the year; the boot- 
maker will be content with one out of the thirty pairs of boots 
he makes in the same time; the physician will probably take 
none of his own medicines. 

96. An Exchanging Class. And it will result, either that 
these persons, having occasion to exchange their products 

*Iri England, says Prof. Roscher, it is 38.8 per cent, of the supply 
that comes to the market; iu Belgium, 40; iu Saxony, at least 50 per 
cent. Iu Germany, the farmers consume on an average, two-thirds them- 
selves. 

The ratio between the portion of the crop raarlceted and the portion 
consumed at home, is, of course, not the same for any two countries, or 
for the same country, at any two dates. It is continually changing with 
changes in the habits of living among the people, with changes in the 
facilities of transportation, etc. 



84 POLITICAL ECONOMY. 

for those of others, will have to give up an appreciable portion 
of their time to making those exchanges in person, or else, the 
woi-k of making exchanges will become the subject matter of 
a new profession or avocation ; and there will come to be 
persons known as peddlers, who, with horses and wagons, 
will go from farm to farm, and from house to house, fetching 
what is wanted and carrying what is not wanted, or, more 
properly, bringing what is more wanted and taking away 
what is less wanted. The labor of these peddlers, however, 
and the use of their horses and wagons belong, as we have 
seen, to the department of production. 

If the smith can in one day make as many horseshoes as 
the farmer could in ten ; and if the farmer can in one day 
do as much in raising wheat as the smith could in two or 
three, it is evident that the peddler, who enables the farmer 
to keep steadily at work raising wheat and yet have shoes for 
his horses, and the smith to keep making shoes and nothing 
else, and yet have bread to live upon, is. a productive agent 
as truly as smith or farmer ; and his cart and sorry old nag 
are as truly engaged in production as the farmer's best pair 
of plough horses or his new subsoil plough. 

Just as the division of labor between the individuals of a 
community gives rise to exchange, so" the extension of the 
same principle to the communities of any land, or, still further, 
to the several countries of the world, creates new occasions 
for exchange and rai)idly multiplies the objects to be ex- 
changed. In all these successive cases the agencies by which 
exchanges are effected, the labor .of the men engaged in trade 
or transportation, the horses and wagons, the steam-cars 
and ships, the services of the clerks who write the orders for 
goods and keep the accounts of sales and payments, and of 
the bankers who advance the requisite capital or remit the 
proceeds of commercial ventures, and even the services of the 
shipping reporters and financial editors who supply the infor- 
mation upon which merchants and bankers alike must act, all 
these agencies are as truly productive of wealth as the labor 
of mechanics or miners or agriculturists, and are to be treated 
under the title, production. We have here only to investigate 



VALUE. 85 

the principles whicli determine that so many dozens of wood 
screws made in Providence or so many pounds of horseshoe 
nails made in Troy, exchange for so much of the wheat of 
Illinois, or of the tobacco of Kentucky, or of the sugar or 
molasses of Cuba. 

97. Value. — "Whence comes this power-in-exchange? What 
are its conditions, and what its limitations ? 

We have defined value as the power which an article con- 
fers upon its possessor, irrespective of legal authority or per- 
sonal sentiments, of commanding, in exchange for itself, the 
labor, or the products of the labor, of others. 

But let us go further, and enquire how it is that one arti- 
cle confers on its possessor such a power while another does 
not; why it is that, of two articles of value, one confers 
iipon its possessor the power of commanding the labor of 
others for weeks or years, while another is parted with for 
tJie service of a day or an hour. 

98. Value and. Price — But, first, let us introduce a term, 
the use of which is not absolutely necessary at this point of 
the discussion, but which will, nevertheless, save much cir- 
cumlocution, and perhaps avoid a liability to misunderstand- 
ing — that term is Price. Value and price are thus related: 
value is, briefly speaking, purchasing power, or power in 
exchange ; price is purchasing power expressed in terms of 
some one article; power-in-exchange-for-that-article, be the 
same wheat, or beef, or wool, or gold, or silver. In common 
speech the word price brings up the idea of money- value, the 
purchasing power of an article expressed in terms of money. 
Yet it is equally correct to say that the price of a horse is 
seventy-five bushels of wheat, as to say that it is one hundred 
dollars. Inasmuch as we have not yet introduced the money 
function into our discussion, the word price, throughout the 
present chapter, will be understood in its more general sense, 
as the purchasing power of a commodity expressed in terms 
of some other article, it matters not what. 

99. Distinction between Value and Utility — In setting 
out upon our search for the law of value, a distinction of the 
greatest importance requires to be made. Value must be 



86 POLITICAL ECONOMY. 

severely distinguished from utility. Many economists of merit 
have stumbled at this point. Even of those who have ob- 
served the distinction between the two conceptions, some 
have resorted to unfortunate terms for their characteri- 
zation, and have written of value in use and value in 
exchange. Now, value in use is utility, and nothing else, and 
in political economy should be called by that name and no 
other. Yalue is power-in-exchange, and, therefore, the term 
value-in-exchange is seen to be a bad one, at once clumsy and 
misleading. 

Nor must it be thought that value and utility have any 
such necessary and constant relation to each other that one 
may safely be used for the other. On the contrary, an article 
may have the highest conceivable utility, yet no value. 

The utility of atmospheric air is inexpressible. We cannot 
live without it. If deprived of it for a few hours only, men 
die in agony. Atmospheric air, however, has usually no 
value, because it is supplied naturally, in such abundance that 
any one can have as much of it as he has occasion to use with- 
out giving for it either his labor or the products of his labor. 
Yet even atmospheric air may acquii-e value and be sold at a 
regular, definite price, so much per cubic foot, as when deliv- 
ered through pipes to a diver beneath the surface of the 
ocean. 

The utility of water is also beyond expression; yet ordina- 
rily water has no value. In cities, however, water is deliv- 
ered to householders at fixed rates, which are supposed to 
represent the cost of the service by whicli the fluid is stored, 
conducted and delivered as required. Water, though ordinarily 
to be had gratuitously, may thus acquire value. On the other 
hand, something may even be paid for merely getting rid of it. 
A party may enter into a contract for pumping it out of a 
mine, or a swamp, or a cellar, at so much a gallon; and a 
much higher price is often thus paid for removing the fluid 
from the place where it is not wanted, than is commonly 
paid for bringing it to the place where it is wanted. But 
while utility and value must not, in economical reasoning, be 
used interchangeably, as they so often are in ordinary speech, 



UTILITY. 87 

utility is always and everywhei'e one of the elements of value. 
It is always present, where value is present, for it cannot be 
assumed that a man will give his labor or the products of his 
labor for that for which he has no use. 

100. Useful does not mean Beneficial.— It needs to be ob- 
served that the utility of which the economist speaks is not 
always the utility recognized by the moral philosopher or the 
j)hysioIogist. By that term the economist signifies only that 
an article answers a felt human want ; that men have a use 
for it. The appetite from which that sense of want arises 
may be vicious, the object itself may be prejudicial, even per- 
nicious. Intoxicating liquors are, in their main uses, injurious 
to body and to mind ; but so long as men want them, they 
have utility, in the economical sense ; and, so long as men 
want them and can only get them by giving something for 
them, they have also value. Nay, the prussic acid which a 
desponding wretch buys of the druggist, has its value as truly 
as the medicine which a father buys to save his child's life, 
and has its utility, in the economical sense, as well. To say 
that a thing is useful, means, in economics, simply that it 
answers a human use. 

101. Neither Value nor Utility is an Intrinsic Property 
of Anything. — Utility depends, indeed, upon properties in- 
herent in the subject ; but the word itself testifies to the 
existence of a user, to whom the thing is useful. Thus, a loaded 
banana tree, on an island where there was no one to enjoy the 
fruit, would not be useful, would have no utility. Now sup- 
pose Robinson Crusoe to come ashore on a big wave ; the 
tree at once acquires the highest usefulness. It satisfies 
hunger ; it supports life. It has utility, not because of 
properties inherent in itself, but because of the adaptation 
of those properties to the wants of a human being. It has 
utility, but as yet no value. Crusoe can get nothing for it, 
since there is no one to give him anything therefor. The 
conditions of exchange are not met. Exchange imiDlies two 
exchangers, and two things equivalent, to be exchanged. 

But now let another half drowned wretch come ashore, and 
the banana tree acquires value, as well as utility, since the 



88 POLITICAL ECONOMY. 

new comer will work for Crusoe, that he rciay eat of the fruit. 
Crusoe can thus exchange the product of the tree for personal 
services, by which his own physical comfort may be greatly 
enhanced. 

102. Is Value a momentary phenomenon ?— We say, value 
is power-in-exchange. Some writers, using this definition, have 
proceeded to argue that value is a momentary phenomenon, 
beginning and closing with the act of exchange ; and that an 
article has value only when it is exchanged ; only while it is 
exchanging. 

Is not this, however, to confound our knowledge of ca thing 
Avith the thing itself ? 

A man owning an article cannot know precisely what it is 
Avorth until he comes to exchange it, and thus determines 
what its purchasing power is. But it may all the time be 
beyond the possibility of doubt, to any rational being, that 
the ai'ticle has purchasing power ; would bring something in 
an exchange. 

One owns a house in ]!^ew York. He cannot know at any 
given time, without resort to an actual exchange, what its 
value is, since value is power-in-exchange, and to an exchange 
as to a quarrel, there must be two parties, and value is deter- 
mined by these parties coming together, at a single point, in 
a bargain. The owner's personal estimate does not fix the value, 
which may prove much below that estimate. But while the 
owner may not know what is its power-in-exchange, there 
may be no room for doubt that it has such power. If it would 
not sell for $30,000, his estimate, it would bring $10,000 in 
any conceivable state of the market ; but if it only brought 
$5,000, or $5, it would have value. 

So, in case of a farmer in Illinois, who has 1,000 bnshels of 
wheat, and sells 500 bushels at $1.50. He knows that the 
remaining 500 bushels have value ; but, just what that value is, 
lie cannot know. That the wheat would go off, at some price, 
would bring something, is beyond question ; but it is con- 
ceivable that it might take a considerable reduction, say to 
$1.45 or $1.40 to carry it off ; or, on the other hand, a change 
in the market migiit piit the price U2) to $1.55. 



RELATION OF LABOR TO VALUE. ■ 89 

There are, indeed, circumstances where a man may not be 
able to know that an article in his possession has value unless 
he actually finds a jDurchaser for it. These are cases where 
the value of an article is, at the best, low; or where the uses 
of an article are few, and the demand for it spasmodic and 
intermittent. But to say that value is a momentary phenom- 
enon, only emerging in the presence of a purchaser, and re- 
maining only during the consummation of a bargain, seems 
much like saying that a body has weight only while some 
one is lifting it. What its weight is can only be told by try- 
ing to raise it; but it may not be doubtful that it has weight, 
even when resting on the ground. 

103. What is the Relation of Labor to Value ? — We have 
said that value is the power which an article confers upon its 
possessor, irrespective of legal authority or personal senti- 
ments, to command in exchange for itself the labor, or the 
products of the labor, of others. 

Does that power arise solely and necessarily from the fact 
that labor has been bestowed upon the production of that 
article ? No. It is true that men do not commonly give labor 
for that which has not cost labor; and that, on the whole, 
and in the long run, the respective values of a number of 
articles will be nearly according to the amounts of labor that 
have been expended upon them, severally. But it is not 
because an article has cost labor that it possesses value. It is 
only because it cannot now be obtained without labor. In any 
given instance it is not necessary that a thing, to have value, 
should itself have cost labor in any degree; while it is not at 
all uncommon to find an article having a value equal to that 
of another article which cost twice as much labor as itself. 
Prof. Senior well remarks: "Any other cause limiting supply, 
is just as efficient a cause of value in an article, as the neces- 
sity of labor to its production. And, in fact, if all the com- 
modities used by man were supplied by nature without any 
intervention whatever of human labor, but were supplied in 
precisely the same quantities as they now are, there is no 
reason to suppose that they would either cease to be valuable, 
or would exchange in any other than their present proportions," 



90 POLITICAL ECONOMY. 

Prof. Senior elsewhere enquires: "Sujspose meteoric iron 
were the only form in which that metal were produced, would 
not the iron supplied from heaven be far more valuable than 
any existing metal ? " 

The essential conditions of value are that the thing to be 
exchanged shall be susceptible of being detached and trans- 
ferred from its possessor to another, and that tliere shall be 
some person who desires it sufficiently to be ready to give for 
it his labor or the products of his labor. 

For example, here is an autograph of John Milton. The 
lines may have been written to a friend, or from a mere freak 
of fancy, or to occupy an idle moment. Labor, in the eco- 
nomical sense, there was none. Yet the autograph may be 
worth $30; that is, may command for its possessor the labor 
of a skilled workman for ten days, of ten working hours 
each. Here is a high degree of value (that is, command of 
the labor of others) where yet no labor has been. Tlie 
explanation is found in the fact that Milton is dead, and his 
remaining autographs are few, while many people want them, 
and want them very much. 

This is an instance of what may be called "monopoly- 
value," or as some prefer to call it, scarcity-value. The 
value hei'e is altogether irrespective of the amount of 
labor expended upon the production of the article, simply 
because the article cannot be reproduced, or the stock of it 
replaced by labor. 

104. Again, let us take the case of an article which has 
been produced by a certain ex^^enditure of labor, but which, 
by reason of the discovery of new fields of the raw material, 
or of some mechanical invention, can now be produced with 
the expenditure of only half as much labor. Will the value 
of the stock of such goods on hand be influenced by the orig- 
inal cost of producing them ? Not at all. They Avill ex- 
change for other products on the same terms as the goods 
brought into the market under the new conditions. 

In the same way it Avould seem that if the amount of labor 
required for the production of this kind of goods should sud- 
denly increase, from the diminution of the supply of mate- 



VALUE. 91 

rials, or other cause, the stock on hand would acquire a higher 
value, corresjDonding to the cost of bringing in new goods of 
the same quality. 

Hence, in respect to all goods which can be produced, or 
the supjDly of which can be replaced, within the time during 
which those who want them are willing to wait for them, we 
say that value is determined not so much by the cost of pro- 
duction, as by the cost of reprodrction. They are ex- 
changed for the products of others, not necessarily in pro- 
portion to the amount of labor which they actually required, 
but, rather, according to the amount of labor which would 
now be required to replace the stock, 

' 105. I said, "within the time during which those who want 
them are willing to wait for them." The fact that goods can- 
not be reproduced, or the stock of them renewed, without a 
certain delay, may, for a time, confer a monopoly-value on 
the existing stock, just as truly as if no more of them could 
ever again be produced. Thus, if the supply of food in a 
city had nearly failed, the fact that an abundance were cer- 
tain to arrive in two weeks would have little or no effect on 
the value of the scanty store remaining. Men cannot wait 
two weeks for food. They must have it at once, and, in their 
urgent necessity, they will exchange their labor, or the pro- 
ducts of their labor, for small and continually smaller quan- 
tities of meat and bread, up to the very moment that the 
ships which bear the new supplies drop their anchors in the 
harbor. 

106. But while, as between the cost of production and the 
cost of reproduction, it is the latter, and not the former, 
which determines the power which an article shall have in 
exchange, that is, its value, it is not true that value is always 
determined by the cost of reproduction. It may be, in regard 
to any given commodity, at any given time, that the cost of 
reproducing it would be greater, even far greater, than the 
price at which it sells. How can this be ? I answer that 
this might occur through a diminution in the occasions for 
the use of that article. 

Two generations ago, every decent family possessed a 



92 POLITICAL ECONOMY 

sisinning-wheel, and spinning-wheels then bore 2 price, fairly- 
proportioned, we may suppose, to the cost of their production 
with the tools and materials then available. A little later, 
when it ceased to be customary to wear homespun and hand- 
made goods, spinning-wheels maybe said to have had no value 
at all. They were banished to attics, or turned into play- 
things for children, and quickly smashed to pieces. To-day, 
a fashion has come in, by which the siDinning- wheel becomes 
the comj^anion of the dado, aesthetic furniture, and Queen 
Anne windows ; and a well-preserved and authentic specimen 
is worth ten times the sum at which a good reproduction 
could be made and sold. 

107. Demand and Supply. — If, then, neither the cost 
of production nor the cost of reproduction determines the 
power which an article shall have in exchange, is there any 
principle of universal application on which value rests ? I 
reply, yes : Value depends wholly on the relation between 
demand and supply. 

These terms require to be defined. It will not answer to 
trust to the ideas which the words of themselves call up in 
the mind of the reader. Demand and supply alike have 
reference (1) to a certain article, and (2) to a certain price. 
In the economical sense, demand means the quantity of a 
given article which would be taken at a given price. Supply 
means the quantity of that article which could be had at that 
price. Neither of these two elements of demand and sujjply 
must be omitted. From the neglect of one of them by many 
economists great confusion has arisen. Nearly all writers 
have seen that demand must have reference to a certain article, 
be it wheat, or potatoes, or iron, or wool, or something else in 
particular ; that there is no such thing as a demand indiscrim- 
inately for meat, potatoes, iron, wool, and all other articles in 
the market ; and that, in the same way, the word supply has 
no significance unless some one article is in view. It has not, 
however, been so clearly apprehended and strongly held in 
mind, that demand and supply both have reference to a 
certain price. 
108. Desire is not Demand.— It has been said that demand 



DEMAND AND SUPPL Y. 93 

means the quantity of any stated article which would be taken 
at a stated price. Demand, therefore, can possibly come only 
from those who could give the price, if they were disposed 
towards exchange. So we see that desire is not demand. As 
Mr. Thornton says, there is no demand, economically speak- 
ing, in the hungry eyes of a penniless boy, looking at tarts 
through a j^astry-CGok's window. Without pennies, an unlim- 
ited longing and capacity for their consumption would not 
enable that boy to contribute aught to the demand for tarts. 

109.' Let us illustrate tie application of the terms demand 
and supply in economics. 

We will take the case of an island far out at sea, inhabited 
by a population mainly engaged in fishing and agriculture, 
having, on one side, a beach which is strewn with vast 
deposits of seaweed, which has been found to be a very good 
dressing, or manure, for the cultivated fields of the island. A 
hundred of the islanders who live near the shore are accus- 
tomed to get out the seaweed, in intervals of fishing or of cul- 
tivating their own little properties, and sell it to the farmers 
inland. 

We may suppose that this manure is found to increase the 
yield of the lands to which it is applied to such an extent that 
there are a thousand farmers who will each give ten bushels 
of wheat, this year, for five loads of seaweed. There is, then, 
a demand for five thousand loads at the price of two bushels 
of wheat per load. Now the supply — that is, the amount 
offered, or ready to be offered, at this price — maybe greater or 
less than five thousand loads. It may be that the catch of 
fish along the shore is so abundant this season that all those 
who are accustomed to get out the seaweed find they can get 
more food for themselves and their families by fishing. 
There may, then, be no supply whatever, at this price. And 
it may happen that there will be no demand for seaweed at 
any higher price. As it is intended only to be used as manure 
for wheat lands, the farmers may be agreed in believing that, 
what with the labor of applying the manure, and what with 
the necessity of paying for it months before the harvest, 
seaweed is not worth to any man more than two bushels of 



94 POLITICAL ECONOMY. 

wheat. In this case, none of this article Avill be gathered, 
and the supply will be nil. 

2d. It may happen that, in spite of the superior atti'actions 
of fishing, this season, as exj^erienced by the majority, a cer- 
tain number of those Avho habitually gather the seaweed may 
continue to do so, some because of the force of habit; some 
because they know that the persons w^hom they have been 
accustomed to supply will look to them for it this year; some 
because their boats and nets are out of repair; some because 
of sickness in their families indisposing them to go far from 
home. So that it may result that a thousand loads will be 
gathered. This may all be sold at two bushels of wheat per 
load. Those who buy may be those who have usually bought 
of the persons who now have to sell, and this may be the sole 
or the determining reason why the seaweed is sold to them, 
and not to others; or they may be those whose farms lie 
nearest to the shore, and hence are first reached by the carts 
laden with the manure; or they may be those who " spoke 
first " for seaweed, early in the season; or any one of a num- 
ber of reasons may control the selection of the persons who 
shall receive the thousand loads, out of the larger number 
who formerly purchased five thousand loads. And this, it 
will be observed, occurs without raising the price of seaweed, 
although the amount gathered has been greatly reduced. 

3d. Again, it may happen that among the former purchasers 
of the seaweed will be found a considerable number of 
farmers, wanting in the aggregate 2500 bushels, who esteem 
that article as worth more to them, per load, than two bushels 
of wheat; and, finding that it cannot be had for the usual 
price, these may begin to offer, first, a quarter and then a half 
bushel more, in order to secure each the amount required by 
his own land. "Who, out of the former class of purchasers, 
shall be so disposed, may be determined by any one, or more, 
of several causes; it may be wont, it may be fancy, it may be 
obstinacy, or, it may be that their lands are of a nature pecu- 
liarly to need such dressing, and to respond with more than 
ordinary liberality to this expenditure in their behalf. This 
demand for seaweed may be found strong and persistent 



DEMAND AND SUP PL Y. 95 

enough to lix the price at two and a half bushels of wheat, 
per load; and at this price enough of the fishermen may be 
induced to give up their fishing ventures to j)rocure the 
required amount of 2500 loads. 

110. We have given three cases where a reduction in the sup- 
l^ly of seaweed brings up the question whether the demand shall 
prove sufficient to raise the price. Let us take successively a 
few cases of an increase of the supply, at the previously pre- 
vailing price. An unusually heavy storm bringing the sea- 
weed in large masses far up on the shore, or the invention of 
some new tool for getting it out, may enable each man engaged 
in this business to bring to market, with the same labor, a 
much greater amount. Or, without either of these things 
haj^jDening, a bad season for fishing may cause a much larger 
number of persons to seek to get a livelihood by furnishing the 
farmers with this species of manure. In one way or another 
it may result that ten thousand loads are now produced, or 
are ready to be produced, at two bushels of wheat per load. 
The supply is, then, ten thousand loads; and it is to be 
observed that this is the supply, equally whether the ten thou- 
sand loads are actually dug, or not, if only those who are 
engaged in this business are ready to bring to market that 
amount, at that price. In this situation, one of several things 
may happen. 

1st. The increase of supply may coincide with an increase 
of demand, due either to the breaking up of new lands 
for tillage, or to the failure of some other species of 
soil-dressing previously used by many farmers, or to a wider 
popular knowledge of the advantage of using the seaweed. 
This increase of demand may be just such as to take off the 
entire ten thousand loads, at the customary price. 

2d. This result is however very unlikely. Even if an increase 
of demand should coincide with such a large and sudden in- 
crease of supply, it would be strange if the coincidence were 
so complete as to leave the price just where it was. If we take 
the more reasonable supposition that there is either no increase 
of demand, or an increase less than the increase of supjDly, 
shall we have under the conditions existing a new price 



96 POLITICAL ECONOMY. 

resulting? In strict theory this is not necessary. It is conceiva- 
ble that while the producers of this article stood ready to 
deliver ten thousand loads at two bushels of wheat a load, their 
interests, feelings, and habits, with respect to labor and sub- 
sistence, might be so balanced, that, rather than take less than 
the customary price, they would allow the production to fall 
to five thousand loads. 

3d. But this, again, is not probable. Although, as we shall 
see later, there is great power in custom to fix prices, so much 
so that articles often keep the same price for years, in spite of 
considerable alterations in the conditions of production, it is not 
to be expected that so great a change as we have supjjosed to 
occur, would fail to result in establishing a new price. The 
producers of seaweed being j^i'epared to furnish ten thousand 
loads, and the purchasers being accustomed to take only five 
thousand, it is jjrobable that the desire of individual j^i'oducers 
to keep themselves fully employed at the business, and to 
dispose of all they had produced, would induce Competition 
among the sellers of this article. 

111. Competition — This is the most important word in the 
theory of value. I have now used it for the first time, 
though it might have been introduced with equal appropriate- 
ness, a moment ago, in describing the change of price from 
two to two and a half bushels per load. 

Competition signifies the unrestrained operation of individ- 
ual self-interest, among the buyers and the sellers of any 
article in any market. It implies that each man is acting for 
himself solely by himself solel}^, in exchange,to get the most he 
can from others, and to give the least he must himself. 

The idea of competition is opposed to combination. "VVhere- 
ever, and in whatever degree, buyers or sellers act in concert 
for asupi^osed common good,whethcr by insisting upon a certain 
price, or by regulating the amount to be bought or sold, there 
competition is, in so far, defeated. In competition every man is 
supposed to be active and alert to slip in ahead of every other 
man and sell his own product first, and sell it at a higher price if 
possible. Men in this state act as freely and as independently as 
the minute particles of some fine dry powder absolutely desti- 



COMPETITION. 97 

tute of cohesion, among which the slightest force may change 
the relation of every particle to every other. If any two parti- 
cles in the economic mass stick together, so that one must 
move when, and as, and because, the other does, competition is 
in so far defeated. 

Competition is also opposed to custom. Whenever buy- 
ers or sellers do anything because they have been used to do it, 
they depart from the rule of competition, which requires not 
only that each one shall do what he does with a view only to 
his own interest, but that ho shall act in the view of what his 
interest, at the time and in the place, requires. If in any 
degree he buys or sells at a certain price, if he buys or sells in 
a certain place, if he buys or sells of or to a certain person, 
because he has done so in the past, he obeys the rule of custom. 
In comj)etition men are assumed in every transaction to seek 
and find their best market, that is, the place to buy or to sell, 
in which, at the time, and under the circumstances existing, 
they can get most for what they have to sell and will give 
least for what they wish to buy. 

Competition is opposed to sentiment, in exchange. When- 
ever any economical agent does or forbears anything under the 
influence of any sentiment other than the desire of giving the 
least and gaining the most he can in exchange, be that 
sentiment, patriotism, or gratitude, or charity, or vanity, 
leading him to do any otherwise than self interest would 
prompt, in that case, also, the rule of competition is departed 
from: another rule fs for the time substituted. 

112. Such is competition in the economical sense. Now 
let us return to our island. We have said that, with the pro- 
ducers of seaweed ready to get out and deliver ten thousand 
loads, while formerly but five thousand were used, it was not 
likely that a demand for the additional amount would arise to 
carry off the entire amount, at the customary price of two 
bushels of wheat a load; and that, consequently, competition 
would probably set in among the sellers of this article. 
Since there are not buyers enough to take all that can be pro- 
duced, each producer, so far as he acts under the dominion of 
this principle, will try to sell all his own stocky no matter 
7 



98 POLITICAL ECONOMY. 

who else does not; and since there is reason to apprehend that 
the price will sink below two bushels, he will try to sell as 
near that figure as possible, and, hence, he will sell as soon as 
he can find a purchaser. Through this force the price will at 
once begin to decline. It may be by slow degrees ; it may 
fall tumultuously. At two bushels of wheat, a load, demand 
and supply arc unequal — ten thousand loads are offered:* 
only five thousand are ready to be taken. At one bushel and 
three pecks, the supply will perhaps sink to nine thousand 
loads, since some of the more adventurous among the pro- 
ducers, the more daring and skillful fishermen among them, 
or those having the best gardens and fields around their cot- 
tages, may decide that they can do better for themselves. 
Meanwhile, we may suppose the demand to rise to six 
thousand loads, so numerous are the farmers who think that, 
at that price, it will pay them to use the dressing freely on 
their lands. At a bushel and a half, demand and supply 
still more nearly approach each other. At the new price, 
the quantity offered — the supply — rapidly falls off, because 
the producers think they can do better for themselves by 
working upon their own gardens and fields, or, in spite of the 
badness of the season, by going out to the banks for fish, than 
by getting out so much of the seaweed for so little wheat. 
Meanwhile the demand has increased since, at a bushel and 
a half for a load of manure, the net produce of the fields, that 
is, the amount of wheat remaining in the hands of the 
farmer, after i:)aying for the maniire, may be appreciably 
enhanced. Supply and demand may now stand, respectively, 
at eight and at seven thousand loads. 

Supply and demand remaining still sundered, it is neces- 

* We liave before stated that tlie supply of any article is not necessarily 
confined to the stock in markets or warehouses, but embraces all that pro- 
ducers stand ready to bring forward at the price named, within the 
period over which the demand extends. In the present illustration, we 
are assuming the producers to l)e petting out the seaweed from day to 
(lay throughout the season when the lands are to be dressed, be tliat season 
longer or shorter. It is not essential that any considerable stock of the 
article should, at any one time, be stacked up ou the shore awaiting a 
pvuchaser. 



FINAL UTILITY. 99 

sarj that there should be a further movement of price to 
bring them together. Whether that step shall be a short one, 
or a long one ; whether supply and demand shall be equal- 
ized at a price much, or but little, below a bushel and a half, 
dejDends on two things, first, the utility to the farmers of the 
soil-dressing, in excess of seven thousand loads, which we 
may call its Final Utility; and, secondly, the ability of the nro- 
ducers to do something profitable besides digging and hauling 
seaweed. 

113. rinal Utility. — This term has been used, in the fore- 
going illustration, with reference to the entire supply of sea- 
weed in excess of seven thousand loads, be that excess one 
hundred, or nine hundred loads. Strictly speaking, however, 
the term should have reference only to the last appreciable 
quantity, which the purchaser is ready to take and which a 
producer is ready to supply. 

The following is Prof. Jevons' illustration of the difference 
betAveen the total utility of any commodity, and the utility 
belonging to a particular portion of it : 

"A pound of bread, per day, supplied to a person saves him 
from starvation, and has the highest conceivable utility. A 
second pound, per day, has, also, no slight utility ; it keeps 
him in a state of comparative plenty, though it be not alto- 
gether indispensable. A third pound would begin to be 
superfluous. It is clear, then, that utility is not proportional 
to commodity ; the very same articles vary in utility, 
according as we already possess more or less of them." 

This descending scale of utility may be applied to suc- 
cessive quantities of seaweed, for the dressing of wheat 
lands. A farmer having a certain breadth of arable lands 
might profitably give two and a half bushels per load for the 
first ten loads, with which to dress certain of his fields 
peculiarly responsive to such an expenditure. If no one 
stood ready to supply more of the seaweed, at a lower price, 
two and a half bushels would be determined as the price of 
the article. Were he to buy five other loads, he might have 
to apply them to other fields, the return from which would 
not justify the payment of more than two and a quarter 



100 POLITICAL ECONOMY. 

bushels, a load. Now, it might be that a i^roducer stood 
ready to delivei- the additional quantity at that, but at no 
lower, price, if so, two and a quarter bushels would measure the 
final utility of the manure, and this will be its price. 

Were the farmer to buy three more loads, he might have 
to apply them to still other fields, from which the enhanced 
return might justify the payment of two bushels a load, but 
no more. As, however, it takes two to make a bargain, his 
readiness to buy at this j)rice would not make this the price 
of seaweed. It is only when a producer is found ready to 
deliver the commodity at the price, that a new price is deter- 
mined. It might even happen tliat the farmer would be wil- 
linsf to take two more loads, if he could set thcni for a bushel 

O JO 

and a half, a load, and that a producer Avould appear willing 
to deliver the article at that price. 

Now, according to the course of our illustration, the farmer 
has bought twenty loads ; but the utility of the several parts 
of that aggregate amount has varied widely ; the utility of 
the first part was very great ; the utility of the last part 
comparatively small. 

114. But One Price for a Commodity. — We have thus far 
assumed, for the purpose of illustrating the declining utility of 
successive portions of a commodity, that the farmer pur- 
chased the ten, the five, the three, and the two Ijads of sea- 
weed at different times, and at prices corresponding to the 
gain in the wheat crop resulting to him from the application 
of the manure. But suppose the farmer had purchased the 
twent}^ loads at the same time, it is evident he would have paid 
one jDrice for the whole. What would have been that price ? 
Would it have been the highest price paid for any portion ? 
Clearly not, since we have seen he could only afford to put 
the dressing upon certain of his fields, on condition of getting 
it at a much lower price. Would it have been at a price, the 
mean between the highest and the lowest ? Just as little ; 
for we have seen tliat producers stood ready to sell at one and 
a half bushels jjer load, Avhich M^ould not have been the case 
had the demand been sufiicient to take off the supi)iy at a 
higher rate. If, in an open market, under full competition. 



BUT ONE PRICE FOR A COMMODITY. 101 

any j)ortion of a given commodity is to be sold at a certain 
pi'ice, then will all the portions of that commodity sold at the 
same time, be sold at that price, whatever the degree of 
utility which may accompany each such portion. If I buy 
a quantity of food for my own consumption, I do not 
pay for that part which would suffice to keej) me alive, a price 
such as I would pay, were it necessary, to bo saved from starving; 
for another part of the food, another price corresponding to 
the discomfort and dissatisfaction I should feel in being insuffi- 
ciently nourished ; and, for a third part a price corresponding 
to the pleasure of ample and generous sustenance. I pay one 
jDrice for the whole, the same for every equal part ; and that 
price measures the final utility of the food to mo ; that is, the 
utility of the portion at which I cease to buy, the portion 
beyond which I would as soon keep the price in my pocket 
as have more of the food. 

Prof. Jevons states the case thus : " When a commodity 
is perfectly uniform or homogeneous in quality, all portions 
may be indifferently used in place of equal portions ; 
hence, in the same market, and at the same moment, all 
portions must be exchanged at the same ratio. There can 
be no reason why a person should treat exactly similar things 
differently, and the slightest excess in what is demanded for 
one over the other, will cause him to take the latter instead of 
the former. In nicely balanced exchanges it is a very minute 
scruple which will turn the scale and govern the choice. A 
minute difference of quality in a commodity may thus give rise 
to preference, and cause the ratio of exchange to differ. But 
when no difference exists at all, or when no difference is shown 
to exist, there can be no ground for preference, whatever. If 
in selling a quantity of perfectly equal and uniform barrels of 
flour, a merchant arbitrarily fixed different prices on them, a 
j)urchaser would, of course, select the cheaper ones ; and when 
there was absolutely no difference in the thing purchased, even 
a penny in the price might be a valid ground of choice. Hence 
follows, what is undoubtedly true, with proper explanations? 
that, in the same open market, at any moment, there cannot 
be two prices for the same kind of article." 



102 POLITICAL ECONOMY. 

It is manifest tliat the principle stated presupposes perfect 
competition. If that condition fails in any degree, the prin- 
ciple is violated, 

115.— What Constitutes an Economical Difference?— 
In the foregoing paragraph, Prof. Jevons speaks of commo- 
dities between which no difference exists. Of course, speak- 
ing in a certain sense, thei-e are no two articles in the universe 
precisely identical. What Prof. Jevons means is that there may 
exist no difference, as viewed by the would-be purchaser, with 
reference to some use to which the two commodities may be 
put, which use two commodities, apparently varying in many 
respects, may indifferently serve. And it is to be noted that 
the existence or non-existence of an economical difference, 
will depend on the quality of the individual exchanger, on the 
purpose he has in view, on the scale of his transactions, and 
on other causes. Thus, a large dealer in poultry may buy 
five hundred pairs of chickens, in gross, only satisfying him- 
self by a rapid examination that none fall below a certain 
standard as to size and condition. His customers, however, 
will inspect the individual fowls, with the greatest careful- 
ness and will perhaps be determined in their choice by 
considerations the most minute, and, j)ossibly, whimsical. One 
good housewife Avill carry off in triumph a pair of chickens 
which another, an equahy good judge of fowls, has contempt- 
uously rejected. In the same way a wholesale lumber merchant 
may buy, in gross, a large amount of stock at a uniform price, 
and a half dozen of his customers may the next day go through 
his yards, each taking out, by preference, a certain por- 
tion as peculiarly adajjted to some job of work he has on 
hand. 

The fact that several commodities have a generic name in 
common does not constitute them the same articles for the j)ur- 
poses of exchange. Thus, corn is not sold in tlie Chicago market 
as corn, but as corn No. 1, or corn No. 2; Spring and Winter 
wheat never bring the same price; tliey are not one kind of 
commodity, but two. and a reason for a preference between 
them always exists. 

The proposition we are considering fui*ther requires to be 



WHA T IS A MA RICE T? 103 

modified with regard to the obstacles to exchange, the 
ignorance or indifference of exchangers, etc. The con- 
sideration of these causes, as qualifying the principle that 
there can be but one price for any commodity, in the same 
market at the same time, will be more conveniently post- 
poned to the title " The Friction of Retail Trade." 

116. — What is a Market ?— Many definitions have been 
given to the word Market. As I apprehend it, the term, in 
political economy, should always have reference, first, to a 
species of commodity; secondly, to a group of exchangers. 
In this view, there is no market which is a market indistin- 
guishably for all or for several commodities, as for tea, iron, 
cotton and wheat; but there is a market for each commodity, by 
turns, as a market for tea, in which tea is bought and sold; a mar- 
ket for iron, in which iron is bought and sold, etc. Thus, there 
are as many markets as there are separate commodities. Sec- 
ondly, a market embraces all those who contribute to the supply 
of or the demand for a given commodity in any ^^lace. Hence, all 
those who are ready to buy of or sell to each other belong to the 
same market, no matter where they live. I say, who are 
ready to buy of or sell to each other. It does not follow from 
this that all who in the same place are buying and selling the 
same article belong to the same market. Thus, suppose there 
are in New York five importers of tea, fifteen wholesale 
dealers in that article, a hundred retailers, and a half million 
consumers. All these do not belong to the same market. The 
importers of tea and the wholesale dealers constitute one tea 
market, the wholesale dealers and the retailers constitute 
another tea market; the retailers and the domestic purchasers 
constitute still another tea market. There are as many mar- 
kets as there are groups of exchangers. In the case supposed, 
there are three tea markets; each has its own group of 
buyers and sellers; and in each of the three, at any time, tea is 
sold at a price different from that at which it is sold in any of 
the others. Thus, the price for precisely the same sort of 
tea, in the market made up of importers and wholesale deal- 
ers, may be $1.00; in the market made up of wholesale dealers 
and retailers, $1.10, and in the market made up of retailers 



104 POLITICAL ECONOMY. 

and domestic purchasers, 11.25. Hence we see that, without 
such a definition of the word market, it would not do to say 
that there can at any time in any market be but one price for 
a given commodity. There is never a day, in any great mart, 
when tea, iron, wool, wheat, or what not, is not being sold at 
several different prices, it may be in the same street, though 
not, as herein explained, in the same "market." 

117. But while within a great mart, like New York, there 
may, thus, be many markets, any one of these markets may 
extend far beyond the limits of that mart. To pursue the 
illustration already offered, the five New York importers of tea 
may sell not to the fifteen wholesale dealers of that city only, 
but to twenty other wholesale dealers in Brooklyn, Jersey City, 
Newark and other places within a ladius of twenty or of fifty 
miles. A market is thus constituted of the five imjjorters 
and these thirty-five wholesale dealers. Every one of the 
latter belongs as distinctly to that market as that one who 
lives nearest the City Hall, for he contributes as truly to the 
demand for tea in that market. Again, this body of whole- 
sale dealers, thus reinforced, may sell not to a hundred but tea 
thousand retailers scattered throughout allthat region; and this 
group of exchangers makes up the market, and not the fifteen 
wholesale dealers and the one hundred retailers of the city of 
New York only. These one thousand retailers, again, sell, 
not to half a million, but to a million and a half of consumers 
of tea. 

All persons whose demand for, or whose supply of, a com- 
modity goes to make up the aggregate demand for or supply 
of that commodity, in any given place, and hence to affect the 
price of that commodity in that place, belong to the same 
market. 

118. But it may be said: this would make the Avhole Avorld 
belong to the same market, and would, hence, take all signifi- 
cance out of the word. By no means. In the market which 
is made up of the five importei'S of tea, all perhaps having 
warehouses on one wharf in New York, and the tliirty-five 
wholesale dealers of the surrounding region mIioui they 
supply, the price of tea will not, probably, be appreciably 



NORMAL PRICE. 105 

different from that which is paid in the market made up of 
the four Boston importers of tea and the twenty-five whole- 
sale dealers who buy of them ; because, if, for instance, the 
New York price were to be lower than the Boston price, the 
New York importers would begin to offer their stock in 
Boston, to get the advantage of the higher price there pre- 
vailing, and would hence contribute to the supply of tea 
there, and hence would come, so far forth, and for the time, 
to belong to that market. But, in the market constituted of 
the wholesale dealers and the retailers of tea in and around 
New York, the price of tea may be one, two, or three cents 
lower than in the corresponding market around Boston, with- 
out any of the New York wholesale dealers sending their 
stocks to New England, or any of the New England retailers 
coming to New York to take advantage of the lower price. 
In the market constituted of the retailers and the domestic 
purchasers of tea, far wider differences may exist, as between 
the two great groups of exchangers. The price of the same 
quality of tea might be, and might long remain, five, ten, or 
fifteen cents higher in the grocery stores of Newark than in 
those of Worcester or Nashua, without a single New England 
grocer going to Newark to retail his tea, or a single Newark 
householder going to Worcester or Nashua to lay in his 
year's supply. 

I repeat my proposition: all those persons who contrib- 
ute to the general demand for any commodity, as felt 
in any place, or to the supply of that commodity there avail- 
able for purchase, and who, hence, serve, as buyers or sellers, 
to affect the price of that commodity in that place, belong to 
the same market. 

119. Normal Price. — If there were a good market for any 
given commodity, i. e., if competition were perfect; if there 
were no large stock of that commodity, but it could be pro- 
duced freely and equably throughout the year, as wanted; if 
the demand for it were uniform and strong, about the same 
quantity being required for use in every equal period of time; 
if no large " plant," or machinery, or great amount of capital 
in other forms, were required for its production; if the pro- 



106 POLITICAL ECONOMY. 

ducers of that commodity had an easy resort, or economical 
" escape/' to occupations in which other commodities were 
produced, and if, in turn, producers in other occupations could 
readily and successfully take u^ the production of the com- 
modity in question, should occasion seem to require, then the 
price of that commodity would, at any time, be close to the 
cost of its production, by which we are to understand not the 
average cost of the whole supply, but the cost of that part 
which was produced at the greatest disadvantage. 

That price would express the final utility of the commodity 
in question, that is, the utility of the portion which, at the 
price, it was just worth the consumer's while to pui'chase. 
That price would also exj^ress the sum of the efforts and 
abstinences of those individual producers who brought forth 
this commodity under the least favorable conditions, of all 
who contributed to thesupj^ly. Inasmuch as this j^rice is to 
be paid alike by all purchasers of this commodity, it follows 
that those who have produced it under more favorable condi- 
tions will obtain a remuneration which will represent more 
than the sum of their individual efforts and abstinences. 

A price which corresponds closely to the cost of production 
may be called the Normal Price. 

120.— Market Price.— Inasmuch as the conditions recited 
in the foregoing paragra^Dh are never fully realized, there is 
for every commodity, in every market, a market price which 
differs more or less widely from the normal price. 

This market price always measures the final utility of the 
commodity, that is, the utility of it to the person to whom it 
is just worth while to buy of it, at that price; otherwise, that 
person would either not buy, which, by leaving a portion of the 
supply untaken would determine a new and lower price, at 
which he would buy; or, he would buy more of it, which, by 
adding to the demand, the supply remaining the same, would 
determine a new and higher price. 

But wliile market price must always measure the utility of 
the commodity to the last purchaser, that is, the person to 
whom it is just worth while to buy of it at that price; market 
price does not always measure the efforts and abjstinences of 



MARKET PRICE. 107 

the last producer, that is, the person producmg under the 
greatest disadvantage to whom, therefore, it is only just 
worth while to produce at that price. It is in this latter 
resi^ect that market i^rice differs from normal jDrice. 

121.— Eelation of Market Price to Normal Price.— 
The causes which make market price differ from normal 
price are various, and the illustration of them might be 
extended indefinitely. They may be grouped as follows : 

I. The existence of a stock. For the purpose of exhibiting 
in its simplest form the operation of supply and demand, 
I took an article of which it was assumed that no considerable 
stock existed at any time. The seaweed was supposed to lie in 
vast dejDOsits on the shore, and to be got out — produced — as 
required. This is a condition which tends to keep mar- 
ket price close to normal price. In the case of most commod- 
ities, however, a considerable stock always exists — a fact which 
profoundly influences market price. The existence of a stock 
is in some cases determined by the division of the year into 
seasons. Thus, in order that there may be grain to form the 
food of the long winter and early spring, seed must have been 
sown and the growing crop cultivated many months previous. 
In order that there shall be a supply of wool in the market, 
sheep must have been bred and reared and washed and shorn for 
years before. Many commodities make no such requirement. In 
order that there may be grain, the processes of production must 
have been begun months back, but given grain, it is only neces- 
sary, in order to have bread, that the miller should have a day's 
notice, and the baker time to heat his oven. Hence, with an 
immense stock of grain, amounting to thousands of millions 
of bushels, there may be but a small stock of flour, of which 
only a minute fraction will, at any time, be in the form of 
bread. 

122. Distinction between the Stock and the Supply.— 
The stock of any article in existence, at any time, must not be 
confounded with the supply of that article, considered as a 
commodity in the market. By the word supply, we express the 
quantity of a commodity offered at any given price. At one 
price the supply may be but a small fraction of the stock — a phe- 



108 POLITICAL ECONOMY. 

nomenon frequently observed in every market; at successively 
higher prices, larger and larger portions of the stock would be 
offered, that is, would come to constitute the supply — until 
a certain price would take off the entire stock. Indeed, the 
sujDply may even become greater than the stock, under a 
highly speculative organization of trade. Thus, in the grain 
or cotton market, or in the market for railway shares or gov- 
ernment bonds, brokers daily offer to sell and contract to 
deliver vast amounts of the several commodities in which they 
deal, but of which, perhaps, they possess little or none at all. 
Sometimes it happens that those who are offering such com- 
modities are entrapped by a combination of purchasers, called 
a " corner," into contracts to deliver, on a certain day, more, 
perhaps many times more, than the entire quantity in exis- 
tence. In such a case, the supply is still the amount offered 
at the price. This it is, and not the stock, whicli, taken in con- 
nection with the demand for the commodity, determines the 
price. 

123. The necessity in some cases, the usage in others, of 
meeting the demand from a stock, and not out of- the amount 
of daily production, causes market price to diverge from normal 
price, through excess or deficiency of production. In order 
that there may be Avheat, three millions of jDcrsons, more or 
fewer, in the United States, plant the grain many m-onths 
previous to the anticipated consumption of the wheat by the 
miller and the baker. These persons break up the land and sow 
the seed without any mutual understanding as to the extent 
of their operations. Each is governed, for himself, by a notion 
more or less vague, as to the probable demand for wheat after 
his crop shall have been harvested. It is not at all a matter of 
certainty that the mistakes in calculation of one farmer Avill 
offset those of another. On the contrary, there is a very 
strong tendency in the errors of producers to accumulate all 
on one or the other side of the line of equable production. 
If the price of wheat, owing to a deficient su^^ply, has been 
high, almost all producers will be found, the next year, largely 
planting wheat. This is likely to produce a surjjlus which 
will perhaps bring down the price below the average, where- 



INFLUENCE OF A STOCK ON PRICE. 109 

upon farmers, with almost as much unanimity as in the former 
case, will, the next year, diminish their operations in this 
direction. The producers who are sagacious enough to look 
about them and say : Others are planting wheat freely; there- 
fore, I will plant something besides wheat, anything, indeed, 
but wheat, are highly exceptional. In productive industry it 
is the rule that men go in droves; act under common impulses, 
with the result of causing excess and deficiency to alternate 
with great rapidity and often great violence. And this holds 
good, not alone of persons in the lower depai'tments of produc- 
tion. It is almost equally true of merchants and manufac- 
turers and bankers. The select few who have the coolness and 
the sense to buy when others are most eager to sell, and to 
sell when others are most eager to buy, reap rich harvests of 
gain. 

124. It may, of course, hajDpen that the kindness or 
unkindness of nature offsets the mistakes of human calcu- 
lation, in this matter of the production of specific forms of 
wealth, as when a great breadth of land is sown with wheat, 
but drouth or excessive rains, undue heat or undue cold, come 
in to cut down the yield to an average crop, or where an 
exceptionally good season makes xip for a narrower extent of 
land under cultivation; but it is also plain that the same 
causes may enter to exaggerate the efforts of human, miscal- 
culation, as when a bad season finds a smaller area in grain 
than usual, or an extraordinary yield per ''acre occurs through- 
out a harvest extending over a great breadth of land, from 
which will result an enormous deficiency or excess of pro- 
duction, as compared with the average, influencing price in a 
very marked degree. During the period when, by the force 
of the " Corn Law^s," the price of wheat in England w^as 
determined alone or mainly by the conditions of raising grain 
at home, it was not at all unusual to find that price higher in 
one year by twenty, thirty, or fifty per cent., than in the 
previous year, or than in the year to follow. * With commodi- 
ties depending less upon the character of the seasons for their 
production, or less subject to mistakes of calculation, excess 
or deficiency of production, as measured from the average, 



110 POLITICAL ECONOMY. 

occurs less frequently, and is confined within narrower, it 
may be, far narrower, limits. 

125. Substitution of one Commodity for Another in Use. 
— The influence upon price of an excess or deficiency in the 
stock of a commodity may be greatly diminished through the 
tendency to substitute one article for another in use. Thus, 
the cereals are, to a great extent, substituted for each other 
in use; one kind of meat for another,* and even bread for 
meat, or meat for bread, in the case of a marked deficiency of 
one or the other. With a short crop of wheat, maize, barley, 
rye, buckwheat and oats are increasingly made use of as food; 
with a short crop of all the grains, resort is had to the cheaper 
kinds of animal food. The result of such substitution in use of 
one commodity for another, under pressure of a deficiency 
in the stock of the latter, is to raise the price of the substi- 
tuted article, and to prevent the jsrice of the article for 
which it is substituted from rising as high as it otherwise 
would. The two commodities are thus, for the time, and in a 
degree, joined together in price; a mutual dependency is 
established between them. 

126. Liability to Deterioration. — The influence upon 
market price of an excess in the stock of any commodity is 
greatly controlled by its liability, or non-liability, to deterior- 
ation. In the case of some commodities, the variations in 
price due to this liability are such as to make it appear that 
price has cut itself wholly clear from the cost of production, 
or the cost of reproduction. A commodity exceptionally 
subject to this condition may lose ten, thirty, fifty, or seventy 
per cent, of its price in a few days, or even in a few hours. 
Thus, in fish markets, the price of a fish might have been a 
shilling when the market opened at 5 o'clock in the morning, 
eightpence at 10 o'clock, sixpence by noon, while at three or 
four o'clock in the afternoon one could have it on his own 

* "We must, in fact, treat beef aud mutton as one commodity of two 
different strengtlis, just as gold at eigliteen carats and twenty carats is 
hardly considered as two, but as one commodity, of which twenty parts 
of one are equivalent to eigliteeu of the other." — Jevons — " The Equiva- 
lence of Commodities," 



CUSTOM AR Y PRICE. 11 1 

terms. In the same way, strawberries and peaches are often 
sold on Saturday night at one-half or one-third the price of 
the morning. 

The necessity of storage, in the case of a postponed sale, 
has often the same influence on the price of a commodity as 
liability to deterioration. The dealer may not have the 
facilities for storing his stock, and to avoid the trouble and 
expense connected therewith, may be disposed to let it go at a 
very low price. 

127. II.— Organization of Industry and Existence of Plant. 
— A second cause which makes market price to differ from 
normal price is found in the organization of industry and the 
existence of machinery and " plant." * It was to get rid, as far 
as possible, of this cause that, in our extended illustration of the 
influence of supply and demand upon price, we took a simple 
" extractive " industry, the gathering of seaweed along the 
shore, which could not be supposed to involve the use of 
numerous or expensive instruments, or the exercise of much 
skill, and that we assumed the persons so engaged to be in a 
position readily to turn themselves to tillage or the fisheries, 
in case of a falling off in the demand for seaweed. We shall 
have occasion to enquire somewhat at length, when we reach 
the department of Distribution, respecting the degree to which 
labor and caj^ital do, in fact, stand committed to certain 
courses, as measured by the delay and loss involved in change. 
It is enough here to point out that, so far as such a state of 
things exists, it must have the effect indicated. 

128. III.— Customary Price. — Another cause which makes 
market to differ from normal price, is the force of custom. 
We owe the existence of a customary price, in some things 
to the power of public opinion, which determines that there 
shall be a stated, well-known price for certain services and 
certain commodities; and, in other things, to habit or the 
mental inertia of pui'chasers. Thus, in the former case, jDublic 
opinion would not tolerate varying and uncertain prices of 
admission to places of public amusement, varying and 

* " Prices are liable to great fluctuations iu trades iu which there is a 
great use of fixed capital."— Marshall— "EconomiGS of Industry." 



113 POLITICAL ECONOMY. 

uncertain tolls over bridges or fares on public conveyances, 
varying and uncertain fees for the performance of necessary 
services, such as those connected with j^hysical comfort, the 
preservation of life, or the burial of the dead. It is seen and 
felt that to leave the buyer to haggle and bargain at the door 
of a theatre over the price of admission; on the brink of a 
river as to the sum to be paid for a cast across the stream; 
in the sick room, about the fee for a prescription or the 
medicine that is to save life or relieve pain, would be 
indecent, intolerable. Hence, public opinion generally pre- 
vails to establish a price on all such occasions, which is alike 
irrespective of the actual service rendered in the individual 
instance, and of the cost of rendering that service. The rule 
of final utility is here suspended or altogethfr abolished. 
The traveler might be willing to give a lai'ge sum, rather 
than pass the night in a storm, without shelter, on the bank 
of a river, but he gets a cast across for the customary price, 
be it twopence or a shilling; the father would give all his 
fortune, were it needed, for the prescription to save his child's 
life, or the medicine which the prescription calls for; but, 
instead, under the rule of customary price, he pays the 
physician two dollars, or a guinea, as the case may be, and, 
at the apothecary's, pays for the medicine by the ounce, in 
silver, though he would pay for it, drop for drop, in his owni 
blood, could it not be had otherwise. 

Whei'e public opinion cannot be trusted to establish a cus- 
tomar}'- price, in cases like the above, the law generally enters 
and fixes the rates at which commodities and services shall be 
sold. Of course, the prices paid must be sufficient to make it 
worth while to keep up the service, whether of the apothecary, 
the physician, the ferryman, or the actor or opera singer; 
but the price to be paid is made independent of the Avealth or 
poverty, the knowledge or ignorance, the little or the great 
need, of the individuals purchasing. 

129. Far beyond the range of customary price, in the 
limited class of cases above referred to, is the effect of 
habit and the mental inertia of the purchasing body, in 
restraining, or wholly repressing, the movements of price, 



CUSTOMARY PRICE. 113 

where a sufficient economical reason for such movement exists. 
In the former class of cases, the seller consciously submits to a 
restraint upon his freedom of action imposed from without, 
viz., by public opinion or law. In the far wider field now in 
contemplation, buyers and sellers are left pei'fectly free, so 
far as outside influence is concerned, but are constrained^ in 
a higher or lower degree, by the laws of their mental consti- 
tution. No human being ever, for a moment, escaj^es from 
the force of habit. It is always easier, other things equal, to 
do what we have done before than to do what we have never 
done; to do what we have done twice than what we have 
done but once; to do what we have done often than what we 
have done seldom. The degrees in which men are thus bound 
by habit differ widely. ' A capability of taking the initiative 
in action, mental courage and activity, freedom from fear and 
superstition, a readiness to meet new conditions and perhaps 
even a pleasure in encountering risks and odds, are among 
the fruits of culture; they become an inheritance in families; 
they even become a characteristic of nations and races. 

The effects of habit upon prices are very important. 
Habit always in some degree, often in a very great degree, 
resists the economical tendency to a new price. The effect is 
seen at its maximum in wages, the price of labor. A day's 
wages often remains the same through years, though, in fact, 
for probably no two days together is the utility of the service 
rendered to the employer exactly the same. So strong is this 
tendency that wages will often remain unaffected by the 
presence of a considerable number of unemployed laborers. 
Instead of wages falling until all the laborers are brought 
into service at the reduced rates, employers continue to pay 
the old rates to a smaller number of workmen. Over the 
prices of goods habit exerts an influence no less real, though 
not equally powerful. It often suffices to keep prices stable 
aofainst an economical reason for movement, and even when 
movement takes place, it begins later and ceases earlier, by 
reason of this constant resistance. 

130. The Moral and Intellectual Elements of Demand 
and Supply.— Our definitions of demand and supply, as 



114 POLITICAL ECONOMY. 

respectively the quantity of any given article which purchas- 
ers stand ready to take at a certain price, and the quantity 
which producers or holders stand ready to deliver at that same 
price, clearly recognize a moral and intellectual element in 
demand and in supply, "Stand ready" to take or to deliver. 
Anything which affects that readiness, is, then, an element of 
demand or of supply. Supply is not a stock, a definite quan- 
tity, which must be sold, Avhether or no. It may be that out 
of a very large stock, holders stand ready to deliver but a 
small quantity at the price offered. The reason for withhold- 
ing the stock rnay be found in the physical conditions attend- 
ing the reproduction of the article, e. g., a scarcity of the ma- 
terials out of which it is made, or the reason may be found 
in the intellectual a])prehension, whether just or mistaken, of 
the state of the market, or the probabilities of the immediate 
future; or, waiving this consideration, the reason for a lar- 
ger or a smaller quantity being offered or taken at a certain 
price may be moral, that is, may be found in the greater or 
less tenacity of purpose, or the greater or less courage to 
undertake risks and sustain arduous and doubtful enterprises. 
In all the variations between normal and market price, the 
moral and intellectual elements are im^Dortant factors. It often 
happens that the producers or holders of an article, anticipat- 
ing a rise of price on some account which may prove to be 
wholly fictitious, will hold back the entire stock, only to sell 
it a little later, at a price far below that which they could 
have obtained for it while the false apprehension lasted. 
More or less, false apprehensions enter to affect the demand for 
and the supply of every article in every condition of the 
market; but the influence of this cause may be at one period 
ten times or a hundred times as great as in other periods. The 
contrast between a placid noonday and a "hurricane eclipse 
of the sun," is hardly more marked than the contrast between 
a peaceful, sluggish market and one excited by mysterious 
rumors, emanating no one knows where, or wrought to frenzy 
by false reports deliberately manufactured by the i)arties to 
some great jobbing interest. 
131. The foregoing holds good even of the wholesale mar- 



FRICTION OF RETAIL TRADE. 115 

kets, where the pai'ties who buy and sell commodities are 
all picked and skilled men, long familiar with the conditions 
of the articles in which they deal, with large opportunities, 
whether by price-currents, newspaper, post or telegraph, or 
by special and secret enquiry, to ascertain all the facts bear- 
ing on the question, at what price they should buy or sell. 
In retail trade, the mioral and intellectual elements of demand 
and supply play a much more important part. On one side is 
the merchant, a man of more than average intelligence and 
information, whose business it is to buy and sell; who by fre- 
quent resort to the wholesale dealer is kept advised of the 
conditions of the market: on the other is the "customer," be 
it man, woman or child, a creature of custom, as the term im- 
plies; often ignorant in the widest sense of the word, unintel- 
ligent and untrained; always and necessarily ignorant in the 
special sense of being unacquainted with the conditions at 
the time prevailing which should determine price, not know- 
ing what a commodity ought to cost, and, in the case of many 
classes of commodities, unable to judge of the quality of the 
goods offered, which is only to be learned by actual wear or 
other use; perhaps at the mercy of the dealer in the matter of 
the measure or weight of what he buys. The merchant, 
again, is the possessor of capital, and can wait to dispose of 
his goods at the best time, withholding them from sale as 
long as his own sense of his own interest may, wisely or mis- 
takenly, dictate: the customer, on the other hand, is generally 
in urgent need of commodities for immediate use, and fx'e- 
quently poor, so that he must buy in small quantities; perhaps 
even, in debt, so that he feels under a strong constraint to 
trade only with his creditor, who thus holds him at a double 
disadvantage, for how can he quarrel, as to quality, measure, 
or price, with the man whom he is not able to pay for goods 
already had and consumed ? 

132. The Friction of Retail Trade.— From the ignorance 
and inertness of the " customer" arises what may be called 
the Friction of Retail Trade. " Retail price," says Mr. Mill, 
"the price paid by the actual consumer, seems to feel slowly 
and imperfectly the effect of competition, and where compe- 



116 POLITICAL ECONOMl 

tition does exist, it often, instead of lowering prices, merely 
" divides the gain among a greater number of dealers. It is 
only in the great centres of business that, retail transactions 
have been chiefly or even much determined by competition. 
Elsewhere it rather acts, when it acts at all, as an occasional 
disturbing influence. The habitual regulator is custom, modi- 
fied from time to time, by notions existing in the minds of 
purchasers and sellers, of some kind of equity or justice." 

And referring to this manifest inability of the customer in 
retail trade to look out for himself in a struggle with the ex- 
pert dealer, Prof. Cairnes says : " Between persons so quali- 
fied the game of exchange, if the rules be rigorously 
enforced, is not a fair one; and it has consequently. been rec- 
ognized universally in England,* and very extensively among 
the better class of retail dealers in Continental countries, as a 
princijDle of commercial morality, that the dealer should not 
demand from his customer a higher price for his commodity 
than the lowest he is prepared to take. Retail buying and 
selling is thus made to rest upon a moral rather than an eco'- 
nomical basis; and, there can be no doubt, for the advantage 
of all concerned," 

133. I am disposed to think that, in the paragraphs quoted, 
these eminent economists, Mr. Mill and Prof. Cairnes, some- 
Avhat overrate the disability under which the customer 
suffers in retail trade; and, secondly, that the inference they 
draw fx'om the undoubted fact of the general prevalence of a 
customary price, viz., that this shows that competition is not, 
in any proper sense, the regulator of such trade, is not fully 
justified. To take an analogous case, let one look around 
him, in any highly organized community, and he will see very 
little display of force in compelling proper tilings to be done, 
or in repressing acts injurious to society. He will see on 

* "In the great majority of cases, nowadays, the debate about the 
value of an article, called by Adam Smith the h'rjrjUng of the market, 
is confined to wholesale purchases and sales. But a geueration or two 
ago, the habit of bargaining in matters of retail trade was general. It 
i.s .still a CMislom in many European countries. It is all but universal in 
the East."— Prof. J. E. T. Rogers. 



FRICTION OF RETAIL TRADE. 117 

every side men doing just and decent and even courteous and 
kindly things, respecting tlie rights of others and making use 
inoffensively of their own powei-s and privileges, just as if all 
this were natui-al and pleasant to them, as, indeed it has, to a 
great degree, become. These actions appear to be spon- 
taneous and instinctive, and one thus looking around on the 
orderly and civil procedure of daily life, whether in social 
intercourse or in businei^s, might think that force was not, in 
any proper sense, the regulator of that community; he might 
conclude that good will towards others, self-respect and 
public spirit were the dominant and almost the sole animating 
forces of society. Yet if that power which in every civilized 
state is always at hand, however veiled or disguised, to protect 
person and property, to repress lawlessness and to punish 
crime, were once withdrawn, society would speedily be trans- 
formed, and the occurrence of every form of rapine and vio- 
lence would instruct the observer that, behind the fairest 
show of order, right dealing and courtesy, stands the armed 
force of the community. 

So, while, within certain limits, competition seems to dis- 
appear wholly from retail trade, and custom and respect for 
the rights of the j^urchaser enter to banish "higgling" from, 
the market and to impose the " one price " system, and thus 
" retail buying and selling," to use Cairnes' phrase, " is made 
to rest upon a moral rather than an economical basis," yet 
the economical forces always lie beneath, as the bed-rock 
below which the effects of moral forces cannot go. Let the 
cost of an article rise above the " customary price," and 
merchants will make an advance upon that price, in spite of 
custom. Let merchants demand an utterly exorbitant price, 
and competition will spring up, even among the least intelli- 
gent and least enterprising buyers. 



118 POLITICAL ECONOMY. 



CHAPTER II. 

THE THEORY OP INTERNATIONAL EXCHANGES, 

134. Mill's Theory of International Trade. — We have thus 
far written of exchange, as if it were a matter wholly between 
individuals of the same community, or perhaps of neighbor- 
ing communities. Is any modification of our conclusions 
required, when exchange is conceived to be carried on between 
distant communities, belonging, perhaps, to distinct countries ? 

The accepted doctrine on this subject is that of Mr. John 
Stuart Mill, who, following Ricardo, who had taken the first 
important step in this direction, and his own father, Mr. James 
Mill, who had elaborated Ricardo's views, propounded a 
theory of International Trade, which I shall proceed to state 
in his own words, as far as may be consistent with the needed 
abridgment. 

The causes which occasion a commodity to be brought from 
a distance, says Mr. Mill, instead of being produced as near as 
possible to the market where it is to be sold for consumption, 
are usually conceived in a rather supei-ficial manner. Some 
things it is physically impossible to produce, except in particu- 
lar circumstances of heat, soil, water, or atmosphere. But 
there are many things which, though they could be produced 
at home without difficulty and in any quantity, are yet imported 
from a distance. The explanation which would be properly 
given of this would be, that it is cli caper to import than to 
jjroduce them ; and this is the true reason. But this reason 
itself requires that a reason be given for it. Of two things 
produced in the same place, if one is cheaper than the other, 
the reason is that it can be produced with less labor and capi- 
tal, or, in a word, at less cost. Is this also the reason as 
between things produced in different places? Are things never 
imported but from places where they can be ])roduced with 
less labor (or less of the other element of cost, time), than in 
the place to which they are brought ? Does the law tliat per- 
manent value is proportioned to cost of production, hold good 
between commodities ])roduced in distant places, as it does 
between those produced in adjacent })laccs? 



INTERNA TIONAL EXCHANGES. 119 

We shall find that it does not. A thing may sometimes be 
sold cheaper by being produced in some other place than at 
that at which it can be produced with the smallest amount of 
labor and abstinence. England might import corn from 
Poland and pay for it in cloth, even though she had a decided 
advantage over Poland in the production of both cloth and 
corn. England might send cottons to Portugal, although Por- 
tugal might be able to produce cottons with a less amount of 
labor and capital than England could. 

135. This could not happen between adjacent places. If 
the north bank of the Thames possessed an advantage over 
the south bank in the production of shoes, no shoes would be 
produced on the south side ; the shoemakers would remove 
themselves and their capitals to the north bank, or would have 
established themselves there originally. But between distant 
places, and especially between different countries, profits 
may continue different ; because persons do not usually 
remove themselves or their capitals to a distant place, without 
a very strong motive. 

Mr. Mill then notes that a tendency is visible towards a 
freer migration of labor and capital to take advantage of 
better opportunities of employment and investment. Capi- 
tal he says, is becoming more and more cosmopolitan ; * 
there is so much greater similarity of manners and institutions 
than formerly, and so much less alienation of feeling, among 
the more civilized countries, that both population and capital 
will now move from one of tliose countries to another, 
on much less temptation than heretofore. But there are still 
extraordinary differences, both of wages and of profits, 
between different parts of the world. 

Under those conditions, Mr. Mill inquires what it is that 
determines the interchange of commodities between two 
counti'ies or two distant places. He answers, it is not a differ- 
ence in the absolute cost of production, but a difference in the 
comparative cost. It might be for the advantage of England 
to procure iron from Sweden in exchange for cottons, even 

* It will be remembered that this was written just a human genera- 
tion ago— almost at the beginning of an age of wonderful progress in 
the arts of transportation and news communication. 



120 POLITICAL ECONOMY. 

thpugh the mines of England, as well as her factories, were 
more productive than those of Sweden ; for, he says, " if we 
have an advantage of one-half in cottons, and only an advan- 
tage of a quarter in iron, and could sell our cottons to Sweden 
at the price Sweden must pay for them if she produced them 
herself, we should obtain our iron with an advantage of one- 
half, as well as our cottons. We may often, by trading with 
foreigners, obtain their commodities at a smaller expense of 
labor and capital than they cost to the foreigners themselves. 
The bargain is still advantageous to the foreigner, because the 
commodity which he receives in exchange, though it has cost 
us less, would have cost him more." 

136. International Values.— Trade arising between any two 
countries, and the subject matter of trade — the commodities to 
be bought and sold between the two countries — being selected 
as has been seen, with reference not to the absolute, but to 
the comparative cost of production, Mr. Mill proceeds to 
enquire how international values are determined. 

The values of commodities produced in the same place, Mr. 
Mill remarks, or in places sufficiently adjacent for capital to 
move freely between them, let us say of commodities produced 
in the same country, depend upon their cost of production. 
But the value of a commodity brought from a distant place, 
and especially from a foreign country, does not depend upon 
its cost of production in the place whence it comes. On 
what, then, does it depeiid ? 

The value of a thing in any place depends on the cost of its 
acquisition in that place ; which, in the case of an imported 
article, means the cost of production of the thing which is 
e:q)orted to pmj for it. 

For example, if England imports vnne from Spain, giving 
for every pipe of wine a bale of cloth, the exchange value of a 
pipe of wine in England will depend, not upon what the pro- 
duction of the wine may have cost in Portugal, but upon what 
the production of the cloth has cost in England. Though the 
wine may have cost in Portugal the equivalent of only ten days' 
labor, yet, if the cloth costs in England twenty days' labor, the 
wine, when brought to England, will exchange for the produce 
of twenty days' Englisli labor, plus the cost of carriage, etc. 



INTERNATIONAL VALUES. 121 

The value, then, in any country, of a foreign commodity, 
depends on the quantity of home produce which must be given 
to the foreign country in exchange for it. In other words, the 
values of foreign commodities depend on the terms of inter- 
national exchange. What, then, do these depend upon ? What 
is it, which, in the case supposed, causes a pipe of wine from 
Spain to be exchanged with England for exactly that quantity 
of cloth ? 

We have seen that it is not their cost of production. If the 
cloth and wine were both made in Spain, they would exchange 
at their cost of production in Spain ; if they were both made 
in England, they would exchange at their cost of production 
in England ; but, all the cloth being made in England, and all 
the wine in Spain, they are in circumstances to which we have 
already determined that the law of cost of production is not 
applicable. We must accordingly, says Mr. Mill, fall back 
upon an antecedent law, that of supply and demand, and in 
this he finds the solution of the difficulty. 

137. After an extended illustration of the terms of interna- 
tional exchange, Mr. Mill issues with what he terms the Equa- 
tion of International Demand, which is thus stated by Prof. 
Cairnes : " International values are governed by the recijjrocal 
demand of commercial countries for each other's productions, 
or, more precisely, by the demand of each country for the pro- 
ductions of all other countries, as against the demand of all 
other countries for what it produces ; the result of this play of 
forces being that, on the whole, the exports of each country 
discharge its liabilities (of which the principal are on account 
of its imports) towards all other countries. Whatever be the 
exchanging proportions — or, let us say, whatever be the state 
of relative prices — in different countries, which is requisite to 
secure this result, those exchanging proportions, that state of 
relative prices will become normal — will furnish the central point 
towards which the fluctuations of international prices will grav- 
itate, the rule to which, in the long run, they will conform." 

138. Prof. Cairnes's Theory of Non-Competing Groups. — 
Tliirty years after Mr. Mill brought out his law of " interna- 
tional values," by which was meant the exchanging j^roportions 
existing between communities, whether nations or not, which 



132 POLITICAL ECONOMY. 

are so far separated that labor and capital do not in fact pass 
freely between them, Prof. Cairnes gave that law a notable 
extension, by pointing out its applicability to " non-competing 
groups " within the same country or industrial district. 

In his great work of 1874, entitled " Some Leading Princi- 
ples of PoUtical Economy Newly Expounded," that eminent 
economist announced, as the result of his study of the econom- 
ical conditions of his own country and of others in the same 
stage of civilization, the existence of large groups of pro- 
ducers which bear substantially the same relations to each 
other, so far as " exchanging projjortions " are concerned, as 
do countries or remote districts — in the view of Mr. Mill. 

" What we find," he says, " is, in effect, not a whole population 
competing indiscriminately for all occupations, but a series of 
industrial layers, superposed upon one another, within each of 
which the various candidates for employment possess a real 
and effective power of selection, while those occupying the 
several strata are, for all purposes of effective competition, 
practically isolated from each other." 

139. As to the correctness of Prof. Cairnes's view of the 
organization of industrial societies into non-competing groups, 
within each of which the movements of labor and capital are 
active and effectual, but which are completely isolated from 
each other, we shall have occasion to enquire under the titles, 
Wages and Interest, when we reach the department of Dis- 
tribution. It will be instructive, however, assuming for the 
present the correctness of Prof. Cairnes's generalizations, to 
follow him in tracing the analogy between industrial groups 
so constituted within the same country, and countries which 
are practically isolated from each other. 

After stating Mr. Mill's "Equation of International 
Demand," Prof. Cairnes goes on to say: "What we have now 
to consider is the mode in which this principle operates in the 
case of the non-competing groups of domestic trade. 

" And, first, in what sense arc we to understand ' reciprocal 
demand,' as applied to non-competing industrial groups? 
Manifestly, in conformity with the analogy of the international 
case, as the demand of each group for the products of all 
other groups for which this grou]i produces. 



INTERNATIONAL VALUES. 123 

. " How, again, are we to measure svich demand ? Again, I 
say, in conformity witli the same analogy, by the quantity of 
the products of each group available for the purchase of the 
products of other groups; while the products of other groups 
available for the purchase of the products of any given group 
will measure their demand for the products of that group. 

"Lastly, how are we to understand the 'Equation of 
Demand,' as applied to non-competing groups ? Still folloAv- 
ing the international analogy, I reply, as such a state of 
exchanging proportions amongst the products of the various 
groups — or, let us say, as such a state of relative prices amongst 
such products, as shall enable that portion of the products of 
each group which is applied to the purchase of the products 
of all other groups, to discharge its liabilities towards those 
other groups. 

" Such is the nature of ' reciprocal demand,' and its mode 
of action as between the non-competing groups of domestic 
industry. 

" Reciprocal International Demand determines the average 
level of prices throughout the entire trade of each commercial 
country in relation to that prevailing in other countries in com- 
mercial connection with it; Reciprocal Domestic Demand 
determines certain minor relative averages extending over 
classes of articles, the products of non-competing industrial 
groups; while Cost of Production acts upon particular com- 
modities, and, in each case, within the range of industrial 
competition, determines their relative prices. 

" The actual price, therefore, of any given commodity will, 
it is evident, be the composite result of the combined action of 
these several agencies. 

140. It will be observed that the " non-competing groups " 
of Prof. Cairnes are not in addition to, but in multiplication of, 
the non-competing industrial entities — countries or districts 
remote from each other, which were in the view of Mr. 
Mill. The two sets of lines cross each other, at right angles, 
so to speak. The two sets of numbers form two factors, of 
which the product is the number of isolated bodies of pro- 
ducers, between which there is substantially no movement of 
labor, and, by conseqiience, between which " exchanging pro- 



124 POLITICAL ECONOMY. 

portions " have to be established according to the procedure 
indicated by Prof, Cairnes. That is : if we consider four coun- 
tries, in each of "which we find four great non-competing 
domestic groups, we have sixteen bodies of producers thus 
isolated from each other, as regards effective competition. 



CHAPTER III. 



MONEY AND ITS VALUE. 



141. Exchange Arises out of the Division of Labor.— Men 

become the j^roducers of that which they expect to consume 
but in i^art, if at all. Their choice as to what they shall pro- 
duce, ceases to be determined by considerations affecting their 
own personal wants, and comes to be determined mainly, if 
not wholly, by considerations affecting their abilities and apti- 
tudes as industrial agents. They no longer produce that 
which they desire to eat, drink or wear, or at least they no 
longer jn-oduce it for that reason alone; but they produce that 
one among many things known to the market which they can 
produce to the best advantage, let who will, in time, eat, 
drink or wear it. Then* own wants they look to see, in turn, 
satisfied by the labor of others, each individual of the com- 
munity working " after his kind," doing that which he can do 
best. 

To the market all producers bring their several products, or 
such jDart thereof as they do not care individually to consume. 
From the market each late producer, now become a consumer, 
cari'ies away that which he is to eat, drink, or wear, or other- 
wise enjoy. In the market is done that which we call 
exchange. 

The economical function of exchange is to bring producers and 
consumers together, and thus allow the division of labor to be 
carried as far as it will serve to increase production. The divi- 
sion of labor has no economical virtue except so far as it 
increases production. Wlicn that point has been reached, a fur- 
ther subdivision of occupations and cnijiloyments would be use- 



THE MONE Y FUNCTION. 135 

less, or of merely curious interest. Exchange, in turn, lias no 
economical virtue except as it allows the division of labor to be 
carried out. Its sole function, economically, is to enable each 
species of wealth, each article known to the market, to be pro- 
duced in the place and by the person where and by whom it 
can be produced to the greatest advantage. To speak of 
exchange as itself productive of wealth, or, to put it con- 
cretely, to speak of trade and transportation as benefiting a 
community, involves a misconception. 

142. The Economical Function of Money.— In its func- 
tion of bringing producers and consumers together, exchange 
discovers the need of the great economical agent of which we 
are about to speak — Money. Just as the occasion for exchange 
arises out of the fact of the division of labor, and as the 
economical efficiency of exchange is limited to that occasion, 
so the need of money arises solely out of the fact of exchange, 
and the economical efficiency of money is limited, strictly to 
the occasion for exchange. The economical interests of a 
community require as much exchanging as will secure that 
division of labor which will achieve the highest productiveness 
of land, labor and capital, and they require no more exchanging 
than this. They require as much money as will enable that 
amount of exchanging to be effected with the least effort and 
with the greatest assurance of a transfer of real equivalents; 
and they require no more money than this. No economical 
efficiency other than or beyond that indicated, can justly be 
attributed to money. 

But how does money facilitate those exchanges which it is 
for the interest of society to have effected ? Just what is the 
economical function of money ? 

143. Money facilitates exchanges by dispensing with that 
double coincidence, of loants and of possessions, which barter, 
or exchange without the use of money, involves. We have 
seen that, so far as the division of labor is carried out, men 
cease to produce all or even the greater part of what they wish 
to consume; but, producing that which they can produce to 
the best advantage, look to others for those j^articular articles 
which are required for the supply of their individual wants. 
The producer and the would-be consumer of each article, 



126 POLITICAL ECONOMY. 

therefore, must get together, somehow, or else the wants of 
the community will remain,in greater or less degree,unsatisfied. 
But that each producer for himself should find some person 
who has what he wants and, at the same time, wants what he 
has, would involve very roundabout exchanges, occujjying a 
great deal of time, and occasioning much delay and frequent 
disappointments. The bootmaker who wanted a hat for his 
own use might find many persons who would be glad to get 
pairs of boots, but had no hats to give in exchange, and several 
persons who had hats, indeed, to sell, but were already supplied 
with boots, before he found one person who both had hats and 
lacked boots. And, moreovei-, when that person were found, 
a further difficulty might easily arise from the failure of an 
exact equivalency between the two articles to be exchanged. 
A pair of boots might be worth more than a hat : perhaps 
three pairs of boots might be worth four hats. Yet the boot- 
maker wants but one hat ; the hatter wants but one pair of 
boots. It is evident that things would soon get into a fearful 
muddle, this way. 

But if, by general consent, formal or implied, the producers 
of the community should hit upon one article which they 
would all agree to take in exchange for whatever they wished 
to sell, a vast saving of time and labor, of annoyance and dis- 
appointment, would be effected, especially if the article so 
taken should be one, say, wheat, susceptible of minute division, 
without loss of utility. 

144. Money, the Medium of Exchange. — What shall we 
call the function Avhich the wheat would in this case perform ? 
Clearly it is something altogether beyond and in addition to 
its ordinary natural function, as wheat, which is simply to be 
made into flour, to be, in turn, made into bread. In the use 
proposed, the wheat would serve another jjurpose. What shall 
we call that purpose ? 

The function performed by the wheat, in the instance given, 
is that of a Medium of Exchange. The significance of the 
word medium, in this connection, is found in the fact that the 
Avheat becomes an intermediate thing in the commerce between 
the producers and the consumers of any and of every article. 



THE MONE Y FUNCTION. 127 

The wheat is no longer an end, as when used for food, but a 
means to an end, which end may be boots, or hats, or gro- 
ceries, or what not. The person who takes wheat for what he 
has produced, may ah-eady have more wheat than he could eat 
in a year. He does not take it with a view to eating it, but 
because with it he can obtain, in kinds and quantities, and at 
times, to best suit his wants and convenience, whatever he 
may wish to eat, drink, or wear, or to warm or house himself 
withal. 

Now, this function which has been described is the Money 
function. Money is the medium of exchange. Whatever 
performs this function, does this work, is money, no matter 
what it is made of, and no matter how it came to be a medium 
at first, or why it continues to be such. So long as, in any 
community, there is an article which all producers take freely 
and as a matter of course, in exchange for whatever they have 
to sell, instead of looking about, at the time, for the particular 
things they themselves wish to consume, that article is money, 
be it white, yellow or black, hard or soft, animal, vegetable or 
mineral in its composition. There is no other test of money 
than this. That which does the money-work is the money- 
thing. It may do this well ; it may do this ill. It may be 
good money ; it may be bad money — but it is money all the 
same. 

145. Universal Acceptability of Money. — We said, all 
producers, since it is not enough that an article is extensively 
used in exchange, to constitute it money. Bank checks are 
used in very numerous and very imj)ortant transactions of 
exchange, yet are not money, because only a comparatively 
small number of people take them for what they have to sell; 
and those who do take checks only take them from persons 
whose pecuniary responsibility they are well assured of ; and 
when they take checks, they know that they will not be able 
to " pass " them anywhere and everywhere, but only at banks 
or at stores where they are themselves personally known. It 
is essential to money that its acceptability should be so nearly 
universal that practically every person in the community who 
has any product or service to dispose of will freely, gladly. 



128 POLITICAL ECONOMY. 

and of preference take this thing, money, instead of the par- 
ticular products or services which he may individually require 
from others, being -well assured that, with money, he will 
unfailingly obtain whatever he shall desire, in form and 
amount, and at times to suit his wants. When any article, 
no matter what its substance or form, acquires this degree of 
acceptability, no matter how obtained or how retained, so that 
each person, in his place in the industrial order, be the same 
high or low, without the expectation of consuming this article, 
and without reference to the character or credit of the person 
offering it, takes it freely from any man whenever he has any- 
thing to sell, because he knows that any other man will freely 
take it from him whenever he may wish in his turn to buy, 
that article becomes money, and remains money while that 
condition continues. To serve as the medium of exchange is 
the money-function, and whatever does this is money. 

146. Money and Civilization — It is evident that the 
introduction of money, even in a very primitive state of indus- 
trial society, vastly facilitates exchanges, and renders it easy 
to carry out the division of labor. It is further evident that 
the use of money is absolutely a condition precedent to an 
advanced state of industrial society. The division of labor 
could not without it be carried as far as is involved in compli- 
cated manufactures and extended commerce. 

" It has been wisely said," remarks M. Chevalier, " that no 
machine economizes labor like money, and its adoption has 
been likened to the discovery of letters." 

The alhision is pi-obably to the noble sentence of Gibbon : 
" the value of money has been settled by general consent to 
express our wants and our property, as letters were invented 
to express our ideas; and both these institutions, by giving a 
more active energy to the powers and passions of human 
nature, have contributed to multiply the objects they were 
designed to express." 

147. Historical Forms of Money. — We have said that 
any article which acquires p. certain degree of accejjta- 
bility throughout the community, Avould thereby become 
money, whatever its material or form. Yet material and even 



THE ME TALS A S NONE V. 129 

form may have much to do with securing to any given article, 
at any given time, the requisite degree of acceptability. The 
industrial habits and the tastes of a people and their social 
conditions may make that money which among another peo- 
ple would be an impossible money. Rock salt long served 
the Abyssinians as money; i-ice, the dwellers on the Coroman- 
del shore; cacoa, the aboriginal Mexicans; olive oil, the 
inhabitants of the Ionian islands; wampum, the early New 
Englanders; tobacco, the early Virginians and Mary landers ; 
tea, compressed into small cakes, the Russians ; dates, the 
savages of the African oases; beaver and sealskins, the peo- 
ples of many northern lands. Wheat, cattle and sheep have 
also been extensively employed as money, alike by the early 
Greeks, by the Romans who conquered the Greeks, and by 
the Teutons who conquered the Romans. 

148, The Metals as Money. — But of all substances, the 
metals have enjoyed the widest use as money, from a very 
remote period. Iron, lead, tin and copper, one or another, 
have been thus employed, in nearly every country whose his- 
tory is known. 

From its numerous and important uses in the domestic arts, 
in the chase, and in warfare, the first-named metal was the 
subject of such wide and constant demand as to make its fur- 
ther use, as the general medium of exchange, i. e,, as money, 
very simple and natural. The art of mining being in early 
times very crude, small quantities of iron represented a large 
amount of labor, and thus contained a high purchasing power. 
Moreover, in comparison with wheat, cattle, and many other 
primitive forms of money, iron cost little or nothing to keej) and 
was but little subject to waste, while a given mass could 
easily be divided into pieces of any required dimensions, 
which could again be reunited, by fusion, or by welding when 
heated. The money of Lacedsemon was of iron; the Swedes 
used money of this metal during and after the exhausting 
wars of Charles XII. ; and iron is still reported to be so used 
by the inhabitants of Senegambia. 

Lead was extensively employed as money by the early 
Romans and the early English, and is still used in the same 
9 



130 POLITICAL ECONOMY. 

^'^1 by the Burmese. Tin was used by the Mexicans as 
money; was long so employed in Sweden, in long, flat blocks, 
and is even now a medium of exchange among the Chinese 
and Malays and in the Prince of Wales Island. 

But more than iron, tin or lead, has coj^jjer, in the later 
centuries, been used as money. Having, from its cost of pro- 
duction, a high value for its bulk, it came to supersede iron in 
this use, when the latter metal became too cheaj) to form a 
convenient money for the j^urposes of ordinary exchange. 
During the silver famine of the middle ages, copper returned 
to be the chief money of circulation in Euroj)e. And though, 
after the revival of silver production, through the discovery 
of Mexico and Peru, it fell out of use as a principal money 
of wealthy and prosperous countries, it has remained a con- 
siderable element in the monetary circulation of the world, 
even to this day. 

Platinum was for a brief period, between 1828 and 1845, 
used as money in Russia, where that metal is produced ; but 
the great difficulty of rendering platinum, now from ingots 
into coin, and again from coin into ingots, prevented the 
success of this experiment, notwithstanding that platinum is 
justly regarded as one of the noblest of the metals. 

149. The Precious Metals. — All the other metals, however, 
pale before the light of two transcendant substances, the 
Precious Metals,* so-called, silver and gold. Having numerous 
important uses in the industrial arts ; possessing the highest 
adaptation for the purposes of ornament and decoration, these 
metals have always and eveiywhere exerted, beyond all other 
objects of human desire, a strange, a mysterious fascination 
upon the minds of men, commanding for themselves accepta- 
Inlity so nearly universal as to qualify them in a high degree for 
the office of money, while their adaptation to the purposes of 
coinage, through their ductility and fusibility, and their 
adaptation to the purposes of circulation, in being nearly 
imperishable so far as accident or the action of the elements is 

*Not tlie most rare or costly of all. Several metals are more valuable 
even than gold ; but these are metals found ia extremely .small quantities, 
too rare to meet the requirement of a general medium of exchange. 



COINAGE. 131 

concerned, have contributed to make them almost the perfect 
money. 

150. Coinage. — Under the title, coinage, we may take 
account of all methods of determining, for easy popular recog- 
nition, the quantity and quality of individual portions of that 
which is used as money. It is in their adaptations to the art of 
the coiner that the metals, and especially the precious metals, 
exhibit their most marked qualifications for use as money. 
With some kinds of money, indeed, no such mode of deter- 
mination is required, the divisions being natural, as in the 
case of the red feathers and shells used as money, or of cattle 
and sheep, which only need to be counted. 

With other, and indeed, most, forms of money, it is neces- 
sary to give a customary shape to the pieces to be so used. 
The Abyssinians, who used rock salt as money, cut it into 
bricks .of uniform dimensions, so that each j)erson taking a 
brick in exchange might know how much salt he was 
receiving. 

Here, the problem was merely mechanical; no chemical 
tests were required. The salt being of reasonably uniform 
quality, the receiver was only interested to know its quantity. 
With money of gold or silver, and even of copper or iron, 
however, both the quantity and the quality of each piece 
offered may be brought into question, unless some 
means be adopted by which the piece shall be made to exhibit 
unmistakably the amount of pure metal it contains. The prob- 
lem is thus both a mechanical and a chemical one, and is 
solved by what we call, in the limited sense. Coinage. The 
metal is melted, and in that state is brought to the required 
degree of purity, or "fineness." It is then cast into ingots, 
and by successive mechanical processes, with machinery of 
great delicacy and power, drawn out to the required thickness, 
cut into planchets, " milled " around the edges, and stamped 
on both sides* with devices expressive both of the sovereignty 

* At first, coins were impressed oa one side, as is now the "gall," the 
only native coin of Cochin China. This allowed the metal to bo shaved 
from the smooth side of the coin. Afterwards characters were stamped 
on both sides, but the area of the coin was not fully defined, allowing the 



133 POLITICAL ECOXOMY. 

of the nation under whose authority the coins are struck, and 
of the quality and quantity of the metal contained. 

Coinage has generally been regarded as an act of sovereignty, 
and the counterfeiting of the coin has widely been j^unished 
as treason. In England, the king's sovereignty only extended 
to the coinage of gold and silver, the private coinage of copper 
not having been prohibited until the present century. So 
important is the money-function, so strong is the tendency to 
abuse the jmvilege of coining, so helpless are the mass of 
the community, especially the poor and economically weak, 
under a corrupted coinage, that, even in free governments, 
where royal j)rerogative is not known, the 23rivate minting of 
money is punished by grave penalties. That coins shall fully 
perform their office as money, they must be taken readily, 
without suspicion, at most, after a brief inspection such as 
even the ignorant and inexpert can give. 

151. What Determines the Value of Money P — It is only 
the present enquiry which brings the topic of money into the 
department of exchange. Otherwise, money belongs in the 
department of j)roduction, as clearly as does any other agency 
of trade or transportation, cattle, carts, railways or banks. 
The mining of the ■ precious metals is governed by the laws 
which regulate the production of other kinds of wealth ; the 
minting of gold and silver is equally a branch of production, 
and the assayers, refiners and coiners are as much j^roducers of 
wealth as the laboi'crs employed in a pig-iron furnace. 

But under the title, Exchange, we may properly enquire why 
any one article, j^roduced as we find it to be produced, under 
existing conditions, exchanges for so much of any other article, 
and not for more or for less. Pre-eminently in respect to iron 
or copper, silver or gold, when cut into planchets and 
stamped as coin, do we need to raise this question and discuss 
it in all simplicily and severity of reasoning, because the sub- 
ject has been allowed to become involved in a thousand unne- 
cessary difficulties from tho lack of clear definitions and from 

edges to be clii)] oil, {13 is largely tlie cuse with the Tomans of Persia. 
Later iinprovements surrounded tho coin willi a well-defined rim, while 
the edges were milled to slill further protect the integrit}' of the piece. 



THE DEMAND FOR MONE Y. 133 

the failure rigorously to exclude everything alien or adven- 
titious ; while the discussion of the laws of money has engen- 
dered so much passion and prejudice as to make it hard to 
secure a respectful attention, or even a rational attitude of 
mind towards any statement of monetary doctrine which 
differs in the minutest particular from that of the hearer. 
Men who are candid and even liberal in politics and 
religion become furiously or stupidly fanatical as soon as 
their views on money are controverted. When Sir Walter 
Scott made a surly critic say to the author of certain Letters 
on the Currency, " In your ill-advised tract you have shown 
yourself as irritable as Balaam and as obstinate as his ass," he 
evidently intended to characterize the whole race of writers on 
this theme. 

The value of money, like the value of anything else, is purely 
a question of demand and supply. The cost of producing 
money is only important as affecting the supply. Limit the 
supply,* and it does not matter whether there be any cost of 
production or not. The advantage of taking that for use as 
money which has an appreciable, definite, and, as far as may 
be, constant cost of production, is found in the fact that the 
supply of such money will be limited by natural causes, instead 
of being left to be regulated by law or convention or accident. 
All the same, it remains true that the value of integral parts 
of any given body of money, at any given time, is independent 
of the cost of production. 

152. What is the Demand for Money ?— The demand for 
money is the occasion for the use of money in effecting 
exchanges : in other words, it is the amount of money- work to 
be done. 

This is not determined by the gross volume of the wealth 
of the community, since all that wealth is not to be, in fact, 
exchanged. For a similar reason, it is not determined by the 
amount of the annual production of the community. 

It is not determined even by the volume of products to be 

* I have already quoted the remark of Prof. Senior that " any other 
cause limiting supply is just as efficient a cause of value' in an article, as 
the necessity of labor to its production. " 



134 POLITICAL ECONOMY. 

exchanged, inasmuch as some classes of these may require 
to be exchanged several times, and some but once. Moreover, 
in spite of the difficulties of barter, as recited, many products 
are, through a fortunate coincidence of wants and of posses- 
sions, esijecially in agricultural communities, exchanged 
against each other; while, more important still, the modern 
organization of commerce, especially through the agency of 
banks, provides for the creation, and subsequent cancellation, of 
indebtedness * on account of products given and taken in 
exchange, to an extent which vastly diminishes the actual use 
of money in effecting transfers. 

153. The Money-Demand a Reality. — Kot the less, is the 
demand for money a reality. Banks and clearing-houses, 
checks and book credits reduce the occasion for the use of 
money, but they do not supersede its use altogether, nor are 
there any signs that they will do so in any future, near or 
remote. In every community, though in some more than 
others, goods are offered for money. Men seek money, hav- 
ing in their hands wherewithal to pay for it. Some of them 
must have money whatever it cost to get it; with others any 
ai^preciable increase in the difficulty of getting money, or any 
appreciable doubt as to the " goodness " of that which is cir- 
culating in the community, does away with the disjsosition to 
obtain it, drives them to barter, and thus destroys a portion of 
the demand for money. 

Some part of the exchangers of every community may be 
regarded as always on the verge of barter; they could 
exchange their products for the j)roducts of others which 
they wish to consume, without unreasonable trouble. Oth- 
ers, again, would exchange tlieu* 2>i'oducts for money, in the 
face of very great difficulties and embarrassments; yet for 
each of these is a point at which difficulties and embarrass- 
ments Avill give rise to an effort, which will thereafter increase 
rapidly in force, to resort to barter or to credit, as the means 
of escaping the use of money; and even, should the matter 

* This fnncliou of banks will be spoken of, more at length, undei' 
that title iu Part VI. 



EFFECTS OF DISCREDIT. 135 

proceed far enough, production will be limited or modified to 
meet the exigency. 

154. Effect of Discredit on the Money-Demand. — Thus, if 
the money of a country be openly discredited, as in France 
prior to and during the Hundred Years' War, and, again, during 
the Revolutionary Epoch ; in England, under Henry VIII. 
and the Protector Somerset ; in the United States, during the 
circulation of the so-called Continental currency; and in Italy, 
through many dreary periods of her history, men may not only 
resort increasingly to barter or to credit, as a means of avoid- 
ing the use of money ; but such discredit of the coin or other 
circulating medium may become a force which will operate 
powerfully to modify and even to limit production, men pro- 
ducing fewer things and those different from what would have 
been produced under conditions more favorable to the divi- 
sion of labor and the consequent exchange of products. 

This, however, can never be carried so far as to totally dis- 
pense with the use of money. In any society above the bar- 
barous state, something must be used, to some extent, as 
money, so long as production goes on at all. 

We see, thus, that the demand for money has no definite 
relation to the total wealth, or the annual product of a 
community, or even to the volume of products to be exchanged. 
The demand for money varies with the amount of money-work 
to be done, which, in turn, varies with the industrial organ- 
ization of communities, with seasons, and with circumstances 
innumerable. Not the less, however, as we said, is the demand 
for money a real thing. Goods are offered for money; and, 
with a given supply, the more goods are so offered, the higher 
will be the value of money — that is, prices will rise; the fewer 
goods are offered, the lower will be the value of money — that 
is, prices will fall. 

155. — Value and Price. — It will have been noticed that, 
in the foregoing paragraph, I have used the word price as 
signifying the money-value of goods. As we stated in a 
previous chapter, value is the generic term which expresses 
2)ower-in-exchange. Price is power-in-exchange-for-some-one- 
article, whatever may at the time be in contemplation. In a 



136 POLITICAL ECONOMY. 

community where money is used, price commonly expresses 
power-in-excbange-for-money. Where nothing to the contrary 
is said or intimated, the price of an aTticle is understood to be 
the value of that article in terms of money — the amount of 
money it will command in exchange. 

156.— "What is the Supply of Money? — If such is the 
demand for money, what is the supply ? It is the money-force 
available to do the money-work which the demand for money 
indicates as required to be done, in the given community, at 
the given time. The money-force, or the supply of money, is 
not measured by what is usually called the amount of money, 
that is, the number of gold dollars or bits of paper used as 
money, but is composed of two factors — the amount of money 
and the rapidity of circulation. " The nimble sixpence does 
the work of the slow shilling," There may be as much 
money-force with 1000 dollars, each of which passes from 
hand to hand four times a week, as with 4000 dollars which 
change owners but once from Monday morning to Saturday 
night. The rapidity of circulation, of course, varies widely 
among different communities, according to the density of set- 
tlement, the prevailing occupations of the people, the facilities 
for the transportation of freight and passengers, and other 
conditions. And the rapidity of circulation not only varies 
according to such conditions, which may, as from year to year, 
be regarded as permanent in any community, but it varies 
from day to day, and hour to hour, with the state of trade 
and the temper of the public mind. 

"^ 157.— The Money Supply a Eeality.— But while the 
money-supply varies thus incessantly, it is none the less a real 
thing; so real that, at any given time, an increase of the demand 
for money will enhance the value of money — that is, will 
lower prices; and a decrease in tliat demand wiU reduce the 
value of money — that is, Avill raise prices. 

^ We have spoken of reducing the value of money as equiva- 
lent to raising prices; and of enhancing the value of money 
as equivalent to lowering prices. Tliis is manifest enough to 
anyone who thinks of the matter; but the student of political 
economy needs to become so familiar with this equivalency 



THE SUPPL Y OF MONE Y. 137 

that he will not have to think consciously about it; but the 
one mode of expression will always and instantly suggest its 
equivalent. To enhance the value of money is, of course, to 
give a larger purchasing power to each integral part of the 
circulating money — that is, to each piece or coin, and to any 
given number of pieces or coins. But if money purchases 
more of other things, other things, conversely, purchase less 
of money — that is, bear lower prices. -¥" 

On the other hand, to say that the value of money is low- 
ered, is to say that money purchases less of other things; but 
if money purchases less of other things, other things, con- 
versely, purchase more of money — that is, bear higher prices. 

158.— International Distribution of Money.— We have 
seen that it is impossible to say what, at any time, in any com- 
munity, is the demand for money, or the supply of money. 
We have now to see that, with money having a natural cost of 
production, no one has any need to know, with a view to 
securing his own interest or that of the community, either how 
much money there is, or how much is needed, inasmuch as the 
demand for money will, under such a system easily and surely, 
because automatically, bring in the due supply required 
to enable all the exchanges of the community to be transacted 
with the minimum of effort and delay, and with the highest 
assurance of the exchange of real equivalents. 

The territorial distribution of money is effected through the 
agency of Price. 

Let us suppose that, of two trading countries having the 
same kind of money, the amount in each, the number of pieces 
or coins, is such that, the rate of circulation being what it is, 
and the demand for money what it is, the scale of prices in the 
two countries precisely corresponds, cost of transportation of 
goods being, for the purposes of the illustration, left out of 
account.^ Now let us suppose that, all other elements of the 
case remaining unchanged, the amount of money in one of 
these countries. A, is suddenly and largely increased, say, by 
the discovery of treasure or by the opening of new and remark- 
ably productive mines. The supj)ly of money having thus 
been increased^ the value of money, as we have seen, must 



138 POLITICAL ECONOMY. 

decline, that is, prices must rise. A given amount of money 
will purchase less of other things than before, which is equiv- 
alent to saying that other things wilKpurchase more of nioney."^% 

Now, if goods, the products of industry, of whatever kind, 
will purchase more money in that country, the owners of goods 
of every description in the other trading country, B, will at 
once feel themselves impelled by self-interest to send goods 
thither, to secure the benefit of the higher prices. Having 
exchanged theii- goods for money in A, they will bring the 
money back to their own country, B. Why do they not invest 
the money in the country where they sold the goods ? Because, 
by the conditions assumed, though A is, as they have found, 
a good market to sell in, since prices are high, it is, from that 
very fact, a bad market to buy in. 

159. — And while every owner of goods in B is hurrying to 
get his goods to A, in order to take advantage of the higher 
prices prevailing there, every holder of money in A is equally 
impelled to get his money as quickly as possible to B, in order 
to take advantage of the lower prices there. So it appears 
that the holders of goods in B are anxious to exchange goods 
for money in the markets of A, and the holders of money in 
A are equally anxious to exchange money for goods in the 
markets of B. Where all parties are so fully agreed, the thing 
to be done is likely to be done quickly. Money flows from A 
to B until the equilibrium which was distvu'bed has been 
restored, that is, until the general scale of prices is the same 
in both countries. After this, the two countries will continue 
to trade as before ; but each will keep its own money. A will 
pay for the cotton, rice and sugar of B with its own wheat, 
lumber, coal and ice. 

160. The Money Movement Automatic— It will be ob- 
served that the movement of money which has been described 
was not due to any one discovering that A had more money 
than it needed, or than its proportional share. No statistician 
or banker announced this result after computing the demand 
for money and the supply of money in A ; nor was the con- 
sent of any person, or any number of persons, obtained to the 
}»roposition to export money to B, The exchanges which 



THE MONE Y MO VEMENT. 139 

restored the equilibrium of jDrices were due wholly to the 
action of individuals, moved by a view of their own interest. 
Not one of them cared, perhaps not one of them knew, whether 
money was in excess in A, or not, but each, finding that by 
sending his goods from B to A, or his money from A to B, he 
could secure a jDrofit, contributed to the result. 

We have seen, in speaking of retail exchanges(par. 132),that a 
great amount of resistance is experienced in the operation of what 
are called " the laws of trade," and we shall have occasion to 
note, when we come to speak of wages, that the laborer's inertia, 
ignorance and poverty defer greatly, and even sometimes 
defeat altogether, the movement from place to place, or from 
occupation to occupation, which is imperatively required to 
secure his interests as an industrial agent. 

While the actual freedom and fullness of movement can, in 
no department of economic activity, reach the theoretical 
maximum, the result is more nearly attained in the department 
at present under consideration than in any other. The persons 
who ship goods or money, in consequence of excess or defi- 
ciency in the money supply, being, in general, merchants of 
large experience and ample means, kept fully advised of the 
state of the markets by weekly letters and price-currents, and 
in later years, by information received daily, and now, even by 
hourly reports, through land telegraphs and ocean cables, 
the actual here more closely than anywhere else approx- 
imates the theoretical readiness and completeness of move- 
ment. At the same time, it is easy to exaggerate even that 
readiness and completeness. 

161. Picking or Selecting the Coin. —We have seen that 
any local excess of money, as between one country and 
another, immediately sets in motion forces which tend to 
restore the equilibrium, that is, to bring about or bring back 
the condition of things in which the same article in the one 
country and in the other will exchange at the same price (cost 
of transportation being taken into account, except in the case 
of those articles or classes of articles which, forming the 
natural subject of trade between the two countries, are 
produced in one at a lower cost than in the othei*, and 



140 POLITICAL ECONOMY. 

hence tend to be exported.* So long as the local excess of 
money referred to continues, the exportation of these articles 
is checked, and money, becoming, for a time, cheaper, is sent 
away in its stead. In still another way, not yet mentioned, 
the local excess of money sets in motion forces which tend to 
restore the equilibrium of prices, viz., by promoting the use of 
the precious metals in the industrial and decorative arts. This 
application of the metals, always considerable, may be readily 
increased through a reduction in their value; and, as less and 
less of other things, wheat, iron or cotton, or of labor which 
produces all these things, will purchase a given amount of gold 
and silver, more gold and silver go to the melting-pot. 

In the case of exportation, or the melting of coined money, 
due to local excess, what determines the selection of the coins 
to be exported or melted ? Is it purely a matter of chance, or 
is it controlled by the comparative proximity of coins to the 
place of exportation or the seat of the manufacture of jewelry, 
or of dental goods, or of photographers' supplies; or does 
some distinct economical force enter to decide that certain 
coins shall go and others stay ? Let us enquire. 

162. Irregularities in the Coin.— In the process of coining, 
it is inevitable, notwithstanding the truly admirable science 
and skill and inventive genius which have been aj^plied to the 
improvement of this art, that differences should exist between 
the coins which are the product of any one mint. The mints 
of some countries do their Avork much more exactly than 
others;! but the best mints cannot turn out coins absolutely 

* The United States having been since 1849 one of the greatest of 
gold and silver i^roducing countries, our mines yielding, at the present 
time, more than 40 joer cent, of tlie annual product of the world, the 
export of these metals from our shores is as normal as the export of wheat 
and cotton. 

f Three gold coins, the Russian Imperials, the French Napoleons, and the 
American Eagles, are bought hy the bank of England without remelting. 
The United States Mint turns out the finest gold coin of the world; the 
Russian Mint, the next best. Tlie mint of France was, fifty years ago, 
charged with grave errors, all on one side, viz., in favor of the minters; 
but that mint is now of high authority. The mint of Great Britain has 
until recently been badly managed and has done poor work, in compari- 



THE PICKING OF THE COIN. 141 

uniform in fineness and weight. A certain range o£ variation 
must be allowed, and this is generally formulated by law, and 
is known as the " tolerance " of the mint. 

But even were all coins issued of exact uniformity, the wide 
difference in the usage to which coins are individually sub- 
jected would soon make an appreciable difference in their 
weight. Some coins go early into hordes or deposits ; others 
are worn down by almost continuous circulation; others still are 
dealt with illegitimately by clipping,punching, and " sweating," 
till a considerable portion of their substance disappears.* 

If, now, with a body of coin of unequal value, a demand 
for the money-metal arises, for export or for use in the arts, 
the process of picking or selecting coin will at once begin. 
All merchants and bankers dealing largely in coin will lay by 
those of full or nearly full weight, which come to their hands, 
and throw the lighter specimens back into circulation. The lat- 
ter, until they get worn below toleration, will answer equally 
well for the purposes of circulation ; while the former have a 
preference for the melting pot, or for export. 

This process of picking or selecting coin for export or for 
melting, begins early in the history of such a demand as has 
been indicated, and proceeds steadily so long as that 
demand lasts. The operation costs practically nothing, and 
the profit, where great numbers of coins are daily handled, is 
large and certain. Clerks and cashiers become so expert that 
they can tell light coins by the touch, while, if doubt exists, a 
pair of adjusted scales will in an instant decide the question of 
full or under weight. 

son with the others named, not out of any dishonest intention, or lack 
of mechanical skill, but from adherence to old fashions and antiquated 
machinery . Mr. Ernest Seyd and Prof. Jevons concurred some years ago 
in a very unfavorable criticism of the establishment on Tower Hill. 
More recently there has been improvement, and the mint authorities now 
take their own sovereigns, when ' ' cut," by weight as standard gold, which 
formerly they refused to do. 

* Prof. Jevons estimates the proportion of "light" sovereigns in 
England, that is, of sovereigns reduced below the legal standard for cir- 
culation, to be 30 per cent. , the proportion in some agricultural districts 
rising to 44 per cent. 



143 POLITICAL ECONOMY. 

163. Gresham's Law — The observation of this process of 
picking or selecting coin has led to the statement of the econ- 
omical theorem, known as Gresham's Law,* viz., that "bad 
money always drives out good money." 

Thus baldly stated, as in most treatises it is, the theorem is 
false. That effect will not be produced unless the body of money 
thus composed of heavy and of light coins, is itself in excess 
of the needs of the community, as determined by the law of 
the territorial distribution of money, which has been stated 
and illustrated. In a country in which money is, according to 
this standard, deficient, a light coin may have, by reason of 
that deficiency, a higher purchasing power than a heavy coin 
in a country in which money is in excess. f 

1 64. The Value Denominator, usually called the Measure 
of Value. — Thus far we have spoken of but one function of 
money, that of the Medium of Exchange, and we have writ- 
ten as if there were but one money function. This has been 
for the purpose of fixing the reader's attention strongly on the 
work of money, as the medium of exchange. All that has 
been said heretofore regarding the use of money in facilitat- 
ing exchanges, regarding the purchasing power of money, 
regarding the ten-itorial distribution of money, and regarding 
the relation of heavy and light money pieces, will be found 
equally true, whether we admit other money functions, or not ; 
while, if there be other money functions, there is no logical or 
practical reason why they may not quite as advantageously be 
discussed from this point forward, as though they had been 
recognized upon the first mention of the topic of money. 

In addition to the function of money as the medium of 

* From Sir Thomas Gresham, fouudeu of the Royal Exchange of 
Loudon. Died 1579. 

\ Mr. Ricardo clearly expressed this necessary qualification of 
Gresham's Theorem, but in doing so, has been followed by few writers 
on money. It is, he says, " a mistaken tl)eoiy to suppose that guineas of 
5 dwt. 8 grains, cannot circulate vvith guineas of 5 dwt., or less. As 
they might be in such limited quantities tliat both the one and the other 
might actually pass in currency for a value equal to 5 dwt. 10 grains, 
tliere would be no temptation to withdraw either from circulation ; there 
would be a real profit in retaining them." 



THE VAL UE DENOMINA TOR. 143 

exchange, nearly all economists are agreed in recognizing 
another independent and co-ordinate function of money, viz., 
as a " Measure of Yalue." " A second difficulty," says Pro- 
fessor Jevons, " arises in barter. At what rate is any exchange 
to be made ? If a certain quantity of beef be given for a 
certain quantity of corn, and, in a like manner corn be 
exchanged for cheese, and cheese for eggs, and eggs for flax, 
and so on, still the question will arise — how much beef for 
how much flax, or how much of any one commodity for a 
given quantity of another? In a state of barter, the price- 
current list would be a most complicated document, for each 
commodity would have to be quoted in terms of every other 
commodity, or else complicated rule-of -three sums would be 
necessary. Between 100 articles there must exist no less than 
4950 possible ratios of exchange. All such trouble is 
avoided if any one commodity be chosen, and its ratio of 
exchange with each commodity be quoted. Knowing how 
much corn is to be bought for a pound of silver, and, also, 
how much flax for the same quantity of silver, we learn with- 
out further trouble how much corn exchanges for so much 
flax. TJie chosen commodity becomes a cotnmon denominator 
or common measure of value, in terms of which we estimate 
the value of all other goods, so that their values become capa- 
ble of the most easy comparison." 

165.— An Incidental and Subordinate Function. — Admit- 
ting the importance of having a value-denominator in which 
the prices of all articles shall be expressed, for the highest 
convenience of exchange, we cannot admit that this consti- 
tutes a separate and independent function of money, since it 
is evident that gold or silver, or any other article, can only 
serve as a value-denominator by and through being used as 
the medium of exchange.* It is only because silver, for 
instance, is, in fact, successively exchanged against all the arti- 

* Hence we see the error of Prof. Bowen's statement: "We can do 
without money as a medium of exchange, and can even barter commo- 
dities for other commodities without the use ol' any medium. But we 
cannot do without money as a common standard or measure of value." 
Were we to do without money in the former capacity, we should per- 



144 POLITICAL ECONOMY. 

cles in the market, that the respective values of these articles, 
in terms of silver, become known, and hence it becomes pos- 
sible to make up the price-current with 100 specifications, 
e. g., and not with 4950. Instead of this being an indepen- 
dent and co-ordinate function of money, therefore, it is 
merely an advantage resulting from the use of money as the 
medium of exchange. It is, at most, an incidental and sub- 
ordinate function. The better statement, still, would be that 
money serves as the medium of exchange: 

(a) Dispensing with the double coincidence required in 
barter, 

(b) Furnishing a value-denominator for the easy and just 
comparison of the values of all the articles in the market. 

166. The Standard of Deferred Payments, usually 
Called tlie Standard of Value. — We have seen that it is of 
the essence of a sale for money, that the producer, or whoever 
at the time stands in the place of the producer, parts with his 
product, receiving therefor something which he does not expect 
personally to consume, something, perhaps, for which he has at 
no time a personal need. His reason for receiving this article 
in exchange for his product is that with it he expects to obtain, 
in time and place and amount most suitable to his convenience, 
that which he shall desire to consume. In other words, he, by 
the act of exchange, defers his own consumption of the equiv- 
alent of his product, taking a piece or pieces of money, as a 
sort of certificate or pledge that he shall receive such an 
equivalent whenever he gets ready to enjoy it. It was in this 
view of money that Adam Smith said : " A guinea may be 
considered as a bill for a certain quantity of necessaries or 
conveniences upon all the tradesmen of the neighborhood."* 

It will appear that, looking towards the satisfaction of the 
producer's wants, a sale for money is only half a transaction. 
He sells his product for money, and must, in turn, sell, so to 

force have to do without it iu the latter, inasmuch as it is ouly by being 
actually used as a medium of exchange, that the power of money to 
purchase each commodity by turns- became known, and hence comparison 
])etween commodities, in respect of their power to purchase money, 
becomes possible. 
* Prof. Senior calls money " Abstract Wealth." 



THE STANDARD OF DEFERRED PA YMENTS. 145 

speak, Ms money for the products of others, such as he may- 
desire personally to consume. To do this, however, though a 
two-fold transaction, requires far less of time and labor, and 
involves far less liability to ultimate disappointment, than the 
attempt to secure the " double coincidence of wants and of 
possessions," which has been spoken of as constituting the 
prime occasion for the introduction of a medium of exchange. 

167. Money a Pledge of Future Enjoyment. — But while, 
in tho very act of a sale of money, the producer defers his 
acquisition of the products of others which he may wish ulti- 
mately to consume, the question, when that acquisition shall be 
realized, remains for himself alone to answer. He has the 
money, which constitutes what has been called an order- 
for-goods upon all tradesmen of the neighborhood, it might 
be said, on all the tradesmen of the wide world; and whenever 
he chooses to step into a shop and lay the coin down upon the 
counter, he may take his equivalent then and there, whether 
in meat or flour or groceries or clothes or tools for his trade, 
or what not. 

168. Sales on Credit. — We are now to contemplate 
exchange transactions of a different character, which give 
rise to a new function of money, viz., exchanges where the 
equivalent, money, is not, at the time, received by the seller of 
goods; but where future payment is promised. These trans- 
actions, which, in a highly organized state of industrial 
society, are far more extensive than sales for money, are 
known as sales on credit, because the willingness of the pro- 
ducer to pai-t with his goods without at the time receiving an 
equivalent, depends upon the credit of the purchaser, or the 
degree of confidence attaching to his word or his bond : his 
character for honesty, his responsibility, as measured by the 
amount of his possessions, and the efficiency of the law in 
enforcing the payment of such promised equivalent, all being 
taken into account. 

169. The vast extension of credit-sales under the modern 
organization of trade, makes a new and very important require- 
ment upon that article which is to be used as money, viz., that, 
in addition to being conveniently portable, not liable to deterio- 

10 



146 POLITICAL ECONOMY. 

ration or accidental injury, easily subdivided, &c., <fec., it shall 
be reasonably stable in value. Now, "where a man takes 
money in his hand as the equivalent of his product sold, which 
we call a sale for cash, he has no anxiety on this account. He 
may exchange his money for goods the same day; if he does 
not, it is because he does not choose to do so. The matter 
rests with him, when he will realize his own enjoyment, that 
enjoyment which he has earned by producing something 
which others have by his permission enjoyed. But if 
a man is to forbear payment for a considerable time, as is 
the case in the great majority of exchanges in a highly organ- 
ized industrial state, it becomes of great importance that he 
should know what that which he is to receive at a distant 
date will be worth to him when he gets it. On the day of the 
sale, the money which is stipulated is worth the goods; other- 
wise, the sale Avould not have taken place. On the day of 
payment, the money may be conceivably worth twice the 
goods, or only half the goods. The risk of some unde- 
served loss, the chance of some unearned gain, are inherent 
in the nature of sales on credit. Whether that risk of loss 
or chance of gain shall be great or small, will depend on the 
degree of stability which attaches to the value (that is, the 
power to command the labor of others) of the article used in 
that community during that perioa, as money. 

It is evident that articles which might otherwise be equally 
well fitted for use as money in sales for cash, that is, which 
might be otherwise equally well fitted to serve as the medium 
of exchange, may be very differently qualified to serve as 
what we now, for the first time, call the Standard of Deferred 
Payments. 

170. The Grains and the Metals. — Thus, if we compare 
the grains and the metals, we note that the former are quickly 
consumed, the greater part in the first year, all within the sec- 
ond year; while the latter last, even in active use, many years. 
The average " life " of iron may perhaps be stated at fifteen to 
twenty years; the life of copper is much longer, and that of 
gold or silver covers several human generations. 

Fj'om these facts it results that, if the production of any grain, 



FLUCTUATIONS OF THE STANDARD. 147 

t.g.y corn or wheat, falls off considerably, in any year or two suc- 
cessive years, through excess or deficiency of moisture or heat, 
the value of that grain, the demand for human food remain- 
ing nearly constant, will rise rapidly, it may be to an inordin- 
ate height; while the j^roduction of gold or silver, and, in a 
lower degree, of coj)per or iron, might be sensibly dimmished 
during many years without greatly affecting the quantity and, 
by consequence, the value, of the existing stock. 

Now, if wheat were to be used as money, it would not infre- 
quently happen that, in the irregular alternation of good and 
bad harvests, a producer selling his goods on one or two yearg' 
credit, would, 'when the payment came to be made, receive 
one-half as much more, or even twice as much in value, as he 
would have received had the j)ayment been made at the 
time of the sale; or he might receive only tAvo-thirds or 
even only one-half what his goods were then worth. So great 
and frequent are the changes in the value of the cereal grains, 
that it would rarely occur that the seller would not receive 
considerably more or considerably less than the value of his 
goods. Nor could the injuries which the producer might 
suffer by receiving less than the value of the goods he parted 
with, be trusted to be compensated by the unearned gains he 
might make at other times, through an advance in the value 
of money. So irregular and unaccountable is the occur- 
rence of bad seasons, that one man might have nearly all bad 
luck and another nearly all good luck, and the former be 
ruined, bankrupted, and driven out of his shop or farm before 
the tide turned in his favor. As many as seven successive 
bad seasons have been known in England. On the other 
hand, the metals are not subject to frequent value variations 
of great extent, though, like all articles in the market, liable 
to incessant oscillations of moderate range. Gold and silver, 
especially, on account of their high degree of durability, are 
almost exempt from the influence of the limited production 
of a single year. 

171. Fluctuations in the Value of the Precious Metals.— 
But while the precious metals are thus almost a perfect 
" standard of deferred payments," from one year to another. 



148 POLITICAL ECONOMY. 

they are yet subject to great periodic variations from genera- 
tion to generation and from century to century. The produc- 
tion of the precious metals is of the most spasmodic character. 
At times, a flood of gold, or of silver, or of both, has poured 
from newly opened mines, as after the discovery of the mines 
of Potosi in 1545, and of the mines of California almost coin- 
cidently with those of Australia, in 1849-51; at times, on the 
other hand, mining industry has almost wholly ceased, either 
from the exhaustion of the known deposits, or as the result 
of war or civil disturbance. Such a cessation of mining 
industry followed the invasion of the Roman Empire by the 
Teutonic tribes; while the series of revolutions and insurrec- 
tions in the Spanish American States, beginning in 1809, 
destroyed the mining machinery, scattered the mining popula- 
tions, and forever closed the mines of regions which had pre- 
viously been among the most prolific sources of the world's 
supply of metallic money. In agriculture, however, while 
incessant fluctuations in the supply of the grains, even those 
most largely and widely planted, result from the mutability of 
cHmate, the great changes from generation to generation, and 
from century to centmy, are not so far reaching. 

"The vast breadth of arable land of reasonably uniform 
quality; the simplicity of the processes of agriculture, and the 
wide diffusion of the art of tillage; the comparative immunity 
of the soil amid ravages which greatly impair, perhaps perma- 
nently cripple, manufacturing, and in an even greater degree, 
mining industry; the limited applicability of the principle of 
the division of labor to agriculture and the relative inefiiciency 
of machinery in its operations; these causes combine to ren- 
der bread-corn, in truth, what Francis ITorner pronounced it to 
be, ' the real and paramount standard of all values.' " * 

172. Corn Bents.— The superior stability of value of the 
cereals, through long periods of time, has led to the sugges- 
tion that, in the case of contracts extending over considerable 
terms of years, grain should be adopted as the standard for 
determining the obligations of the debtor, the rights of the 

* Walker: Mouey, Trade, aud ludustiy. 



CORN RENTS. 149 

creditor; and to a limited extent this has been done; but the 
tendency to express the consideration of all sales in terms of 
that which is the current money of daily use in the commu- 
nity is so strong that few persons, even of those who are act- 
ing as trustees for institutions of charity or of learning, or 
for j)ersons incapable of doing anything to repair losses that 
may be sustained by an adverse change in " the standard," 
take the trouble thus to guard the interests they represent; 
nor does any tendency aj)pear to an increased resort to this 
mode of measuring indebtedness. The manifest convenience 
of having that for the standard of deferred payments which 
is also the medium of current exchanges, the indolence and 
want of initiative in the mass of mankind, which lead to 
the acceptance of what is near and familiar, and perhaps, also, 
a superstitious regard for the precious metals, combine to 
withstand the reasons which urge the expression of rents, 
interest and annuities in terms of some leading grain, like 
wheat or maize, in the case of long leases, permanent loans 
and fixed charges uj^on land. 

173. Multiple or Tabular Standard.— It has even been pro- 
posed to go further, in the effort to avoid those undeserved 
losses which result to debtors or to creditors, as the case may 
be, from changes which take place in the value of even the pre- 
cious metals through long periods of time. The scheme for 
a multiple standard or tabular standard, to form which a great 
number of articles should be joined together, in order that 
their individual value-variations may offset each other, with 
the result of substantial uniformity of value in the mass so 
composed, Avas, early in the century suggested by writers in 
England and Germanj^, and has more recently been advoca- 
ted by Prof. Jevons of the former, and by Professor Roscher 
of the latter country. This proposed scheme will be briefly 
discussed in Part VI. 



150 POLITICAL ECONOMY. 

CHAPTER III. — MONET AND ITS VALUE — Continued. 

DEBASED coin: SEIGNIORAGE. 

174. Debased Coin.— We now ajsproach a question whicli 
should be decided entirely upon the principles regulating the 
value of money already laid down, yet which is the suljject of 
so much misconception, which has been so covered-over with 
false reasoning by authors who, in other departments of 
political economy, liave done excellent work; and which is so 
sure to arouse prejudice and i^assion, on the mere statement of 
it, that it is needful for the teacher to accompany the student 
of money over the ground, and, if possible, save him from 
the pitfalls and quagmires into which even trained logi- 
cians and practiced writers have fallen. Prof. Jevons has 
remarked that a kind of intellectual vertigo attacks all Avho 
treat this fatal theme of money ; and we have now reached 
the point where most people lose their heads. Surely the 
beginner ought not to be left to find his way here alone, even if 
he has already been provided with the chart and compass to 
guide his steps. 

175. Seigniorage. — The most safe and convenient entrance 
to this land of gins, and snares and griefs, is through seigniorage. 
That term has long been appliecl to the amount of metal 
abstracted by government, or the lord, the seignior,bcfore coin- 
age. Seigniorage may be of two kinds, or rather two degrees. 

1. When the cost, either actual or approximate, of coinage is 
taken out, and thus the state or the lord is reimbursed for 
the expense. 

2. When more metal than is necessary to repay the expense 
of coinage is abstracted, and thus the state or the lord makes 
a profit by the coinage. 

176. Cost of Coinage. — Let us consider the first. Shall the 
value of the coin be computed according to the market value 
of the contained metal, viewed as so much bullion, or shall the 
cost of the mintage be added to the value of the metal? For 
instance, if the expense of making the coin called a dollar be 
one cent, shall the coin contain a hundred cents' worth of gold 



COST OF COINAGE. 151 

or silver, or shall it contain only 99 cents' worth, and the cost 
of the coinage be added to make up the 100 cents, which are 
declared by law and by the tables in the school arithmetics to 
make one dollar ? 

On this point the opinions of economists and the practice of 
governments differ. Although the question involved is not 
wholly economical in its nature, but is in jjart matter of politi- 
cal and fiscal expediency, we will here briefly state the argu- 
ments on the one side and the other. 

On the one hand, it is said that gold and silver, being 
wanted in the form of coins, are, for that reason, worth more 
in coin than in bullion ; that, serving an additional use as 
coined money, they are the subjects of a demand over and 
above what exists for uncoined bullion, a larger demand justi- 
fying a higher price ; that, moreover, to fit them for this use, 
labor and capital are employed, the cost of which service 
should appear in the value of the product. 

It is urged that there is no more reason why gold in coin 
should not be valued higher than gold 'ri baro, than there is 
why gold in bars should not be Trfeod hSghc? than gold 
imbedded in quartz. Note the treatment of tho other metals, 
it is said : iron is sold in the form of plates, rivets, rods, and 
chains, at more than the price of iron in the pig ; in the same 
way^ if gold in coin costs more, and is more useful than in 
ingots, those who want it in the form of coin, and not the 
whole community, should pay for the coinage. 

Moreover, it is urged, if such a change be not made, a vast 
amount of metal will alternately be coined and melted down, 
recoined, and again melted, whereas a seigniorage charge will 
put a premium upon the exportation of coin or its melting 
down for use in the arts, so that bullion, if it is to be found, 
will be taken instead, and coin will only be taken when suffi- 
cient bullion is not found to supply the demand. 

177. Gratuitous Coinage. — It was in this view that Dudley 
North called gratuitous coinage,* " a perpetual motion found 

* The distinction between gratuitous coinage and fiee coinage, is not 
sufficiently observed. Where no seigniorage charge is made, but the 
com contain the full amount of bullion which corresponds to its mint 



152 POLITICAL ECONOMY. 

out, whereby to melt and coin, without ceasing, and, so feed 
goldsmiths and coiners at the public charge." 

In the face of these considerations, however, some of the 
greatest commercial nations, England foremost among them, 
have maintained gratuitous coinage. Nor is this course 
wholly without economical justification. 

It is said that, while the expense of equipping, officering, and 
operating a mint is large, the difference in expense caused by 
minting more or fewer coins, is very small. For this, it is 
argued, the country establishing gratuitous coinage is compen- 
sated by the instantaneousness with which the export of gold 
follows the slightest accumulation in excess of the wants of 
trade, 

178. Seigniorage in Excess of Cost of Coinage . — So much 
for seigniorage which only covers the cost of coinage.* We 
have now to speak of mint charges which exceed that cost, 
and become a source of revenue to the state. In the old days 
of high prerogative, kings frequently made their sole right of 
coinage a means of profit. In England, during the reign of 
Edward lY., the seigniorage on gold was above 13 per cent.; 

value, i. e., when the dollar contaius one hundred cents' worth of inetal, 
that is gratuitous coinage. Free coiuage exists, where any owner of bul- 
lion has the right to have it coined on the same terms as the government, 
or as any other citizen, whether with or without a seigniorage charge. 
Thus free coiuage exists in England in regard to gold. Any subject can 
bring gold, iu any amount, to the mint and have it made into gold coin ; 
but free coiuage does not exist with respect to silver, that metal being 
coined only iu such amounts as the Government, through the Bank, 
deems necessary for supplying the people of the Kingdom with 
"change." 

In the United States free coinage exists also in regard lo gold ; but the 
coinage of silver is restricted. By the law of 1878, the Secretary of the 
Treasury must coin two millions of silver dollars a month, and may coin 
four millions, but no more. The coinage of half and quarter dollars, and 
of smaller pieces of silver, is governed by the same principle as in Eng- 
land. During the continuance of the bi-metallic system in the states of 
the "Latin Union," (France, Italy, Belgium, and Switzerland), free 
coinage existed in regard to both metals. The coinage ol silver is now 
restricted iu those countries. 

* J\I. Chevalier has proposed to apply the terra Brassage to the charge 
for the actual cost of coiuage. 



SEIGNIORAGE : EFFECT ON PRICES. 153 

during the reign of Henry VII., it once rose to 16 per cent. 
These, however, were exceptional instances in England. In 
France, in Italy, and in most of the countries of continental 
Europe, before the great revival of modern commerce, debase- 
ment of the coin was a favorite resort of weak or profligate 
monarchs. Both in quantity and quality, in weight and in 
fineness, the circulating money was pinched and robbed, until 
the actual amount of pure metal bore sometimes a ludicrously 
small ratio to the original fine contents of the coin. The Eng- 
lish " pound" was once a pound- weight of silver. The pound 
of standard silver is now coined into 66, instead of 20 shil- 
lings. The "pound scots," of which we read, had but ^^ of 
its original weight. The florin and the Spanish maravedi were 
once pieces of gold. The former is now a piece of silver ; the 
latter a piece of copper. 

179. What is the Effect of Seigniorage on the Purchasing 
Power of Coin ?— On this subject I follow Mr. Rjcardo with- 
out deviation, believing that he was the economist who most 
fully and justly apprehended the relation of money to price ; 
and that departure from the principles laid down by that great 
thinker, in this department of economical enquiry, leads to 
confusion, misconception and needless controversy. 

Let us supi^ose that in a certain country are required for 
the purposes of domestic trade, 1,000,000 pieces, each contain- 
ing 100 grains of fine gold. This would involve the use of 
100,000,000 grains of gold as money ; and a certain average 
level of jjrices would result from the relation between this 
amount (its rate of circulation being assumed constant, for the 
purposes of the following illustration), and the demand for 
money arising from the exchanges actually requiring to be 
effected by the use of money. 

Now, suppose the princii^le of seigniorage to be introduced, 
the sovereign, out of every hundred grains brought to the mint, 
taking one to repay the actual cost of coinage, putting 
into circulation 1,000,000 pieces of 99 grains each, and 
placing 1,000,000 grains in his storehouse as treasure, 
or causing it to be manufactured into plate or ornament. 
There are now only 99,000,000 grains of gold in circulation, 



164 POLITICAL ECONOMY. 

but the same number of pieces, eacb of the same " mint-value " 
i. e., 100 grains. 

Will each piece now purchase as much of other commodities 
as before, or less ? 

We answer, as much. There is the same demand for pieces 
for the purposes of exchange ; there is the same supply ; the 
same prices must result. 

But suppose the sovereign proceeds further, and takes not 
one grain, but ten, from every hundred, issuing 1,000,000 
pieces of only 90 grains each. Will the purchasing power of 
each piece be affected ? Not in the least. There is the same 
demand for pieces, the same supply. People still want pieces 
of money ; can only get them by giving commodities for 
them ; have as many commodities and no fewer to give ; and 
there are just as many pieces and no more to be obtained in 
this way. 

180. Excessive Issues. — But let us take a step in a some- 
what different direction. Let us suppose thai the sovereign, 
instead of placing in his treasury the 10,000,000 grains which 
he took, under his right of seigniorage, coins this gold also 
into pieces of 90 grains each, and pays them out for personal 
or public expenses. What will be the result ? Depreciation 
will at once begin. The 90,000,000 grains, when coined into 
the same number of pieces of the same official (mint) denom- 
ination as the 100,000,000 had been, retained the same purchas- 
ing poAver ; but when the 100,000,000 are coined into a larger 
number of pieces, the purchasing power of each piece at once 
falls. 

181. Ricardo's Statement.— " While the state alone coins," 
says Mr. Ricardo, " there can be no limit to this charge of 
seigniorage; for, by limiting the quantity of coin, it can be 
raised toany conceivable value." 

" On the same principle," he remarks, " viz., by a limi- 
tation of quantity, a debased coin would circulate at the 
value it should bear if it were of legal weight and fineness, 
and not at the vahie of the quantity of metal it actually con- 
tained." 

" In the history of the British coinage/' he continues, " we 



SEIGNIORAGE : EFFECT ON PRICES. 155 

find, accordingly, that the currency was never depreciated 
in the same projDortion that it was debased, the reason 
for which was that it was never increased in quantity, in pro- 
portion to its diminished intrinsic value."* 

Mr. Ricardo did not flinch from the assumption of a seign- 
iorage of 50 per cent. " There can," he asserted, " exist no 
depreciation of money, but from excess; however debased a 
coinage may become, it will preserve its mint value; that is to 
say, it will pass in circulation for the intrinsic value of the 
bullion which it ought to contain, provided it be not in too 
great abundance." 

This doctrine, which has proved " a hard saying " to many 
economists, a stumbling block and a rock of offense to many 
readers, is, it will be observed, merely the rigorous, courageous 
application of the principle that the value of money is deter- 
mined solely by the relation between demand and supply. I 
believe it to be the true doctrine of monetary circulation. 

It is not to be thought that Mr. Ricardo advocated a seign- 
iorage in excess of the cost of coinage. " The limits beyond 
which a seigniorage cannot be advantageously extended," he 
says, "are the actual expenses incurred in manufacturing 
the coin." The objections to a debased coinage are two : First, 
that inasmuch as the mint value of such coins is greatly 
above the value of the bullion they contain, the excess of 
such coins in circulation may proceed to a high degree, pro- 
ducing very mischievous effects upon trade and industry, before 
exportation begins, since, for use in foreign lands, the coins 
have value only according to the amount of pure metal in 
them. Secondly, the practice of reducing the amount of bul- 
lion in the coins is deemed to be a dangerous one, because 
there is no point at which we can be sure it will stop. Every 
fiscal exigency of the Government will suggest fresh attacks 
upon the integrity of the coin. 

These objections, the first of which alone is based on econom- 



* Mr Ricardo cites, in illustration of this principle, the period prececl- 
ing the recoinage of 1696, tbat preceding the suspension of 1797, ancl 
that preceding the great Bullion Controversy of J810-9, 



156 POLITICAL ECONOMY. 

ical principles, are precisely those which we shall see offered 
to the issue of inconvertible paper money. 

182. The Omitted Proviso to Ricardo's Statement.— 
There is one proviso which should be attached to any state- 
ment of Mr. Ricardo's theorem regarding the value of debased 
coin. That Mr. Ricardo failed himself thus to qualify his 
proposition "that, however debased a coinage may become, 
it will preserve its mint value," has caused much misap- 
prehension of his views and much needless controversy. The 
required proviso has already been intimated (par, 153), when we 
were speaking of causes which may diminish the demand for 
money. If debasement of the coin be carried so far and carried 
on so long that a popular reluctance to receive the money pieces 
be generated, of a strength sufficient to cause men to modify 
or limit their production in order to avoid exchanges, or to 
cause them to encounter the inconveniences of barter rather 
than handle the distrusted coin, then dej)reciation may result: 
that is, the supply of money Mall become excessive through 
the blow inflicted upon the demand for money. But this can 
happen on no other condition; and a popular reluctance to 
receive coins is not a necessary consequence of debasement. 
Why do men take money at all? We. said, in first describ- 
ing the money function, that it is not because they have, at the 
time, any personal use for the gold or silver or iron or leather, 
or paper, or wood, of which it may be composed; but it is 
taken as a means of obtaining, in due time and place, that 
which they do desire to consume. Men take money because 
they believe others will, in turn, take it from them. If a man 
be only assured of this, he has no reason to care, in fact he does 
not care, wliat the money is made of, what the coin contains. 

183. Depreciation not a Necessary Result of Debase- 
ment.— Let us suppose the coin of a country, without being 
increased in amount, to be debased three per cent., and the 
fact to become known. The habit of accepting the coin is 
strong; the acquired momentum of the circulating mass is 
great; men must either take the coins in exchange for their 
products, or they must cease to produce; or they must change 
their industry and produce that which does not need to be 



CIRCULA TION OF DEBASED COIN: 157 

exchanged, i.e., that which they will themselves consume; or, 
lastly, they must resort to barter. Now, any one of the latter 
courses involves a great initial loss, greater, doubtless much 
greater, than any possible loss in receiving coin debased three 
per cent. For this reason men continue to receive the coin, 
or, more properly, they continue to receive it without reason- 
ing at all about the matter, having been accustomed from 
childhood to take it freely and gladly. And if any man, more 
thoughtful than his fellows, hesitates to accept the money 
pieces, his hesitation vanishes on beholding all around him 
receiving it without demur. That is all he needs. If others 
will take the coins from him, his own occasions will, in turn, be 
answered. He does not want to eat the coins, or make them into 
jewelry, but to use them in buying the necessaries of life. If 
they will do that, they are good enough for him. And so a full 
and free acceptance of a debased coinage might be estabHshed 
in spite of a momentary feehng of reluctance, or even without 
such a feeling arising at all. There is no reason to doubt that 
just this condition of things has existed, in many a country, 
many a time. 

Suppose that, after the community had become accustomed 
to a seigniorage of three per cent., some exigency of govern- 
ment, or the greed of the prince should lead to a further equal 
debasement of the coin, making a total of six per cent. In 
that event, either the habit of accepting the coin of the realm 
would maintain the circulation of the debased money, or, if that 
circulation were to be challenged by popular objection^ then the 
question would be presented to every man, as before, whether 
he would take this debased coin, or cease producing, in whole 
or in part, or change his industry so as to produce articles 
which would not require to be exchanged, or, thirdly, resort to 
barter. The whole community having become accustomed 
to the thought and the sight of coin debased by three per cent., 
it might easily happen that to do any one of the last three 
things spoken of would cost any one producer more than the 
possible loss by accepting coin debased three per cent, further; 
and so, a full and free circulation of the debased coin might 
still be maintained. 



158 POLITICAL ECONOMY. 

184. And it is to be borne in mind that this coin circulates 
at its mint-value, not at a discount of six per cent., or of any- 
other rate. There is no reason why the coin should be sub- 
jected to a discount. Assuming, as we have done, that the hab- 
its of the people in regard to production and trade have not 
been, as yet, changed by the debasement of the coinage, there 
are just as many goods to be exchanged as before ; just as 
many money-pieces are, thei'efore, needed, while no more 
money-pieces are to be had, since we have all along made the 
condition that the metal abstracted by the government should 
not be put into new coins, but only the old number should be 
issued. 

185. Depreciation Results from Excessive Issues.— But 
now let us suppose that, Avhen the debasement has proceeded 
to the extent of ten per cent., government takes the gold and 
silver it has abstracted from the coin, and issues it in the form 
of new coin debased like the other. Immediately deprecia- 
tion will set in. The value of money, like the value of any- 
thing else, is determined by the relation between demand and 
supply, Tbe goods to be exchanged for money-pieces remain- 
ing the same in amount, and the number of pieces having 
been increased, the purchasing power of each piece falls, irre- 
spective of any popular distrust of the coin. 

So far the effect is the same as in the case of an excess of 
full-metal coin ; but, as depreciation proceeds, the essential 
difference between the two kinds of money appears. With 
an excess of full-metal coin, exportation begins at once. The 
country becomes a good market to sell in, a bad market to 
buy in, both for the same reason, viz., prices are higher there ; 
and the course of exchange will speedily bring in the remedy. 
With debased coin, hoAvever, no outlet is afforded until the 
depreciation reaches the point Avhen the 90 grains of line 
metal in the coin will bring more abroad, melted down, tlian 
the coin (though of the mint-value of 100 grains) will bring at 
home. Within this limit, depreciation may proceed without 

remedy. 

186. Inflation.— A permanent excess of the circulating 

money of a country, over that country's distributive share of 



INCONVERTIBLE PAPER MONEY. 159 

the money of the commercial world, is called Inflation. Its 
influence on industry and trade and on the distribution of 
wealth will be discussed hereaftei-. 



CHAPTER IV. 

INCONVERTIBLE PAPER MONET. 



187. In monetary science, the true entrance to paper money 
is through seigniorage. If we have rightly apprehended the 
relations of seigniorage to the circulation of coin, and the 
effects of seigniorage upon prices, we need have no difficulty 
in dealing with any question arising under the present title. 

" The whole charge for paper money may be considered as 
seigniorage." This remark of Mr. Ricardo is true and very 
significant. We have seen that the State may withhold from 
the coin one per cent, of the pure metal, to cover the cost of 
coinage; that it may withhold ten per cent., as a means of 
securing revenue for the treasury, and that such pinching of 
the coin has been frequently practised in the ages of high pre- 
rogative; that the State may go farther and, by successive 
invasions of the coin, take out one-half or even two-thirds of 
the money metal, as in the case of the English pound sterling, 
or all but three per cent., as in the case of the, pound Scots; 
that it may even go further still and substitute copper for 
gold, as m the case of the Spanish maravedi. Now let the 
last step be taken in the same direction, and, instead of pieces 
of metal, let the public treasury issue pieces of paper bearing 
the names of the superseded coins, and we have a body of 
money governed by precisely the same principles, alike as to 
circulation and as to the resulting prices of commodities, as a 
debased coinage, whether debased three per cent, or thirty. 
Paper money is money upon which the seigniorage charge is 
one hundred per cent.* 

188. Historical Instances of Inconvertible Paper Money. 

— The inven tion of paper money, like many another great 

* Minus the inconsiderable cost of paperaad priatiug^ ~~ 



160 POLITICAL ECONOMY. 

discovery, is traced to the orient. When Marco Polo visited 
China in the twelfth century, he found there in circulation a 
money consisting of pieces cut from the inner bark of the 
mulberry tree. These " notes " were issued " Avith as much 
solemnity and authority as if they were of pure gold or silver." 
A century later, one of the rulers of Persia introduced paper 
money, in direct imitation of the Chinese, the imitation extend- 
ing even to devices and names ; but the experiment here was 
less fortunate, or more fortunate, if one chooses so to regard it, 
than the Chinese experiment, since, after two or three days of 
enforced circulation, the markets were closed, the lieojile rose, 
the officials were massacred, and the money disappeared. A 
century later, we hear of jjaper money in JajDan. 

It took the duller- witted races of Europe some centuries 
more to comprehend the mysteries of j.mper money ; and 
meanwhile princes had to content themselves, when hard-up, 
with operating upon the^ coin, swearing their coiners not to 
divulge the secrets of their mints, and juggling their people 
just as far as the omnipresent scales and acids of the banker 
would permit. But when pajjer money became once fairly 
introduced into Euroj^e, it was, like some of those other inven- 
tions and discoveries referred to, rapidly improved in its 
details and extended in its applications. 

An eminent writer on finance, M. Wolowski, claims for 
his native country of Poland the proud distinction, as he 
regards it, of having been the only nation of Euroj^e which 
has given no example of the issue of paper money ; but it is 
to be remembered that Poland lost her independence a long 
while ago. Had she survived to the present time, it is not 
unfair to believe she would have her paper money history 
equally with the gigantic neighbors who crushed out her 
national life. 

Of the present States of Europe, the southern tier, Portugal, 
Spain, Italy, Greece, Austria, and Turkey, comprising every 
country that borders the Mediterranean, except France, have 
inconvertible paper money, issued by government. Russia, 
though both a northern and a southern State, casts in its lot 
with the Mediterranean nations in this respect. The northern 



INCONVERTIBLE PAPER MONEY. 161 

tier of countries, Great Britain, France, Belgium, Holland, 
Germany, and Scandinavia, have paper money, indeed, but of 
that class which we shall describe, under a subsequent title, as 
Bank Money, 

189. Characteristics of Inconvertible Paper Money. — 
The kind of money of which we are writing may either be 
issued originally by the State, out of the Treasury, as a fiscal 
measure, as in the case of the present paj)er money of most of 
the southern States of Euro^je already mentioned, as in the 
case of the " assignats " and " mandats " of the French rev- 
olutionary epoch; as in the case of the " Continental currency " 
of the American revolution, and of the " Greenbacks " and 
" Confederate notes " of the war of secession ; or it may result 
from the degeneration of bank money, originally issued with 
the character of convertibility, i. e., full, immediate and uncon- 
ditional redemption in coin, on demand, but, by some exigency 
of government or stress of commercial misfortune, losing that 
character, and protected in its inconvertibility by the law of 
the State, as in the case of the English Bank money of the 
" Restriction " (1797—1821), as in the case of the notes of the 
Bank of France during the revolution of 1848, and again 
during the war of 1870-71, with Germany, and for several 
years thereafter, and as in numerous other cases of minor 
importance. 

Generally speaking, forced circulation is an attribute of this 
sort of money, though that character may be disguised, espe- 
cially in the case of degenerated bank money, by one artifice 
or another, as for instance the money may not be made legal 
tender, but all remedy at law may be taken away from cred- 
itors who refuse to receive it. 

Paper may be declared to be redeemable in coin ; that 
promise may even be borne upon the face of the paper ; but 
if provision be not made so that, in fact, every holder of a 
note can obtain therefor, at will, full-metal coined money, 
the paper is inconvertible in the economical sense. If any 
conditions to redemption are interposed, it is none the less 
inconvertible than if redemption were not even promised. 

The pledge of public lands or stocks for ultimate payment, 
11 



163 POLITICAL ECONOMY. 

makes no difference, in tliis respect. No paper money is con- 
vertible, the full, immediate and unconditional redemption of 
which is not, at all times, within the choice of the holder. 

190. Is this Properly Called Money ?— Economists have 
generally agreed to deny the title, money, to such issues. Indeed 
it is as much as one's reputation for economical orthodoxy is 
worth, to concede that inconvertible paper may become money. 
Yet, even at this fearful risk, I must maintain that opinion, as 
expressed in my works of 1878 and 1879. 

If we seek a reason for this attitude of the orthodox econ- 
omists, we -find that it is because they deprecate the use of such 
a "circulating medium," deem it mischievous, pernicious, 
destructive of industrial and social well-being. But, as I have 
ventured elsewhere to remark, it would be as reasonable to 
deny that whiskey is drink, because we deprecate its use as 
drink, as to deny that inconvertible notes are money because 
we deprecate their nse as money. 

The economists have dealt with the subject as if the ques- 
tion were necessarily this, money or not money? money 
being assumed to be, not only a good thing in general, as an 
economical agent, but always beneficial in all relations and 
under all circumstances. And, inasmuch as they think they 
have shown (in which I fully agree with them), that the use 
of inconvertible paper as a " circulating medium " produces 
very injurious effects, industrially and socially, they deny that 
it is entitled to be called money. 

According to the views presented in this treatise, the sole 
test of money is the performance of the money function. As 
has been said, that which does the money-work is the money- 
thing. If it does this work well, it is good money ; if it 
does the work ill, it is bad money. 

191.— May paper Money Serve as the Common Medium of 
Exchange ?— About tliis there can, I conceive, be no doubt 
whatever. Take tlie United States " Greenbacks " of 1863 
to 1879. Did not producers accept them readily in full pay- 
ment for goods ? Yes, with the utmost readiness. Did men 
resort to barter to avoid the use of this medium of exchange ? 
No. Did men refuse to produce, or contract their production, or 



INCONVERTIBLE FA PER MONEY. 163 

modify it, lest they should have to receive those circulating 
notes in payment for their commodities ? Again, no. 

There never had been a period in our history when the divis. 
ion of labor was carried further ; when the differentiation of 
industry and the diversification of production went on more 
rapidly. This is the sure test of the performance of the money 
function. The division of labor, as we have seen, implies ex- 
change. The differentiation of industry and the diversification 
of production involve increasingly the use of money in carrying 
the products to the consumer. Whenever production is being 
enlarged and diversified, there, without any question, something 
is acting successfully as the medium of exchange. 

Observe that it is not now a question of prices, of how many 
dollars in greenbacks were required in 1864 or 1874 to buy 
what ten dollars in gold would have purchased in 1860, or 
would now purchase in 1882. That, as we have seen, is a matter 
of the volume and rapidity of circulation. The question now, 
is simply as to the freedom and fullness of circulation. It may 
be asserted with the utmost confidence that there never was a 
time when the commercial movement Avas more active ; that 
gold or silver coins or notes of solvent banks at no period of 
our history passed more freely in exchange for goods. 

It is not asserted that such paper is always and everywhere 
money. It becomes money when it begins to do the money- 
work ; it remains money as long as it continues to do that 
work ; it falls out of the category of money when it ceases to 
do that work. After the American Congress had issued the 
" Continental " money in such quantity that even the treasury 
ceased to keep a record of the issues, and the value had sunk 
to 200:1 of silver, there is no question that, for a short period 
before the notes finally disappeared and silver came back, the 
notes ceased to be money. Men would not take them ; modi- 
fied their production, or curtailed it to avoid the necessity of 
taking the discredited j^aper ; resorted increasingly to barter, in 
spite of all its inconveniences. The same fate bef el the French 
" mandats " after the revolutionary authorities had issued 
" assignats " to an amount popularly stated at forty-five thou- 
sand millions of francs. The Confedei-ate notes ceased to be 



164 POLITICAL ECONOMY. 

money upon the collapse of the government that issued 
them. 

192. May Paper Money serve as the Value Denominator? 
— It is at this point that the economists appear to me most 
deeply in error, insisting, as they do, that here is something 
which money does, but paper money cannot do. 

It was said, in the last chapter, that money, in perform- 
ing the function now in question, is commonly spoken of as 
the "Measure of Value," Now, what money does in this con- 
nection is no more than to serve as the common denominator 
of values, as described by Prof. Jevons, in par. 164. It was 
shown in the pages immediately following, that this function 
is not a separate and indejjendent function of money ,but a purely 
incidental and subordinate function ; that not only is anything 
which is competent to serve as the general medium of 
exchange, adequate also to serve as the common denominator 
of values ; but that anything which does, in fact, serve as the 
medium of exchange, must, in the very act and part of doing 
so, create the price-current, which is what is sought under this 
title. * If corn, beef, wool, potatoes, coal, and all other arti- 
cles in the market are daily exchanged for that one article — 
money — no matter of what it consists, or why it became 
money, we have, as the direct result of those transactions, the 
means of comparing the values of corn, beef, wool, and all 
other ai'ticles : that is, we have our price-current. If all those 
articles are exchauged against jiieces of pajser, we obtain their 
exchanging jDroportions just as really, just as accm-ately, just 
as readily and intelligibly, as when they are exchanged against 
pieces of gold or silver or copper. If one article brings three 
pieces of jjaper, another ten, another eight, we learn the com- 
parative value of those articles as quickly and easily as if the 
first brought three pieces of silver,, the second ten, and the 
third eight. And we may be sure of this : if men, for any 
reason, desire pieces of paper sufficiently to give for them the 
products of their labor, they will take just as much pains to 



*The idea that values are "measured" b}' money, has a great deal of 
tenacily. A soniewliat more extended diijciission of this question will be 
found iu uiy work on .Mouey, Chap. XIV. 



INCONVERTIBLE PAPER MONEY. 165 

get all tlie pieces of paper which those products are worth, as 
they would, were silver circulating as money, to get all the 
pieces of silver which their products were worth; and on the 
other hand, those who have the coveted pieces of paper will 
try as hard to make them go the furthest possible in buying 
goods, as they would were these pieces of silver instead of paper. 

All that is needed for a value denominator is that each pro- 
duct in the market shall be in turn exchanged against some 
one article, in order that the value of each and all products 
shall be expressed in terms of that article, from which it will 
result directly that the exchanging proportions of the several 
products become known. 

193. May Paper Money Serve as the Standard of Defer- 
red Payments ?— We have seen that paper money may 
become the general medium of exchange, being taken * as 
freely and eagerly as money of silver or gold. We have also 
seen that whatever serves as the general medium of exchange 
does, by that very fact, serve, also, as the common denominator 
of values (usually, but inappropriately, called " the measure 
of values "), furnishing the price-current from which are 
quickly, accurately, and confidently determined the exchang- 
ing proportions of any two commodities in the market. 

That paper money may serve as the standard of deferred 
payments (usually, but inappropriately, called " the standard 
of value ") goes without saying. As was stated under a pre- 
vious title, forced circulation is generally an attribute of this 
sort of money, and where that is the case, such money 
becomes, by definition, the standard of deferred payments. 
By it the obligation of the debtor, the claim of the creditor, 
is measured, as of course. Even where pajDer money is not 
made legal tendei*, it is almost, if not quite, as likely to 
become the standard of deferred payments as a money of 
silver or gold. The tendency to express the consideration of 
all sales in terms of that which is the current money of daily 
use, is so strong that few persons, even of those who are act- 

* At its value, whatever that may be determined to be by the opera- 
tion of " supply aud demand." 



166 POLITICAL ECONOMY. 

ing as trustees, will take the trouble to make leases, rents, annu- 
ities or interest upon loans payable in anything but the ordin- 
ary circulating medium of the time. The notes of the Bank oi 
England were not legal tender, in the ordinary sense, during 
the period of the "Restriction;" yet, though they ceased to 
be convertible in 1797, the first instance, so far as I am aware, 
of a refusal by any creditor of such notes in payment of 
debts, was that of Lord King, in 1811; and this refusal took 
place, as Lord King claimed, not from any selfish motive, but 
purely in order that, by strongly attracting the public atten 
tion to the monetary condition of the kingdom he might pro 
mote the resumption of specie payments. 

During the circulation of the legal-tender greenbacks in the 
United States, every person who Avished to make contracts 
for future payments m terms of gold or silver, Avas at liberty 
to do so; yet it is notorious that very few took advantage of 
their legal right in this respect. That which had become, no 
matter how, the current money of daily use became, for that 
reason alone, the almost universal standard of deferred pay- 
ments. 

It is quite another question whether paper money performs 
this function with justice to debtor and creditor, or with 
advantage to the general community. That question we shall 
meet further on. 

1 94. What Determines the Value of Paper Money ?— AVhat 
determines the value of any kind of money ? What deter- 
mines the value of anything? Demand and supply. The 
demand for money is, as we saw, (par. 152) the amount of 
money- work to be done, the amount of exchanging requiring to 
be effected through the use of money. The supply of money is 
the money-force available to do the money -work, compounded 
of the volume of the circulating money, and the rate of circula- 
tion. Supposing the occasion for the use of money — the 
demand — to remain the same, and the rate of tlie circulation 
of paper to be the same as that of metal, the value of a body 
of paper money would be the same as that of a body of 
money consisting of as many i)ieces of metal as there were 
2>ieces of paper, the pieces being of iJie same "denomma- 



INCONVERTIBLE PAPER MONEY. 167 

tions," wbetlier stamped by the mint-press or the printing- 
press. 

We said : " Supposing the rate of circulation of paper to 
be the same as that of metal." I am aware of no reason for 
supposing that any difference in the rate of circulation of 
metal money, on the one hand, and of paper money on the 
other, would exist, if all other conditions were alike, of suffi- 
cient importance to require to be taken into account in the pres- 
ent discussion. The paper would, of course, be handled some- 
what more easily than the metal, would be remitted by mail or 
parcel-delivery somewhat more readily and safely, and thus 
a thousand dollars, so-called, in paper would do somewhat more 
money-work than a thousand dollars in metal ; yet the differ- 
ence in this respect would not be imjjortant. Every one who is 
familiar with the money usages of Europe will admit this to 
be true. 

"We may accordingly drop this proviso. We also said, how- 
ever : " Supposing the occasion for the use of money — the 
demand — to remain the same." Will the demand for money 
be affected by the substitution of paper for metal ? The 
popular opinion undoubtedly is, as often expressed by pamph- 
leteers and uninformed writers on the subject of money, that 
the mere fact of the emission of inconvertible paper, of itself 
produces discredit, so that such money, irrespective of any 
excess of issues, at once becomes disti-usted and avoided, and, 
in consequence, the demand is diminished and depreciation 
ensues. 

195. Depreciation not a necessary consequence of Incon- 
vertibility. — The opinion above stated is, however, unfounded. 
We saw (par. 183) that depreciation was not a necessary result of 
debasement of the coin. Not only will the same line of reasoning 
establish the proposition that depreciation is not a necessary 
result of the issue of inconvertible paper by government, or of 
the degeneracy of bank money originally issued as convertible, 
and becoming inconvertible through panic or commercial dis- 
aster ; but historical instances not a few exist of such paper 
money maintaining itself for a time in circulation without dis- 
credit and without depreciation. It is undoubtedly true, as 



168 POLITICAL ECONOMY. 

Prof. Bonamy Price asserts, that "experience has proved 
that it need not of necessity suffer any depreciation of 
value."* 

196. Inconvertible Paper always issued as Cheap Money. 
— The moving cause in the issue of inconvertible paper money 
in any country where it has been known, has been its cheap- 
ness, as compared with the metal money which it has replaced. 
Whatever excellencies may have been reflectively discovered in 
such money after it had come into circulation, I am not aware 
that the institution of such money has been due, in any indi- 
vidual instance, to any other virtual reason than that which 
has been expressed. 

We saw that the sovereign first pinched the coin, say, one per 
cent., under the name of seigniorage, to meet the cost of coinage, 
and then, finding the opportunity too temj^ting, took out it 
might be five, it might be fifteen per cent., or even more, for 

* On a point so vital in the theory of money, as this, it may be well to 
add authority to reason, especially as current American literature greatly 
misrepresents the real purport of the economical opinion of the great 
writers on this subject. 

Mr. Thomas Tooke, the most eminent economic statistician of the 
world, explicitly and repeatedly states that depreciation is not a necessary 
consequence of inconvertibility. 

Mr. James Wilson, founder of the London Economist, and a states- 
man and financier of wide experience both in England and in India, 
declares that if the amount of inconvertible paper be properly regulated, 
" there is no reason whatever why such notes should suffer depreciation." 

M. Courcelle-Seneuil, perhaps the ablest economist writing in the 
French language since J. B. Say, expresses the opinion that if the emis- 
sions of paper money be moderate, they may have the same value as 
metallic money. 

I have made use of three names of the first rank in the economics of 
finance. Let me now quote, at greater length, the most illustrious writer 
known to monetary science. 

" The whole charge for paper monej'," says Mr. Ricardo, "maybe 
considered as seigniorage. Though it has no intrinsic value, yet b}' lim- 
iting its quantity, its value in exchange is as great as an equal denomina- 
tion of coin, or of bullion in that coin. It is not necessary that paper 
money should be payable in si^ecie to secure its value ; it is only neces- 
sary that its quantity should be regulated according to the value of the 
metal which is declared to be the standard." 



INCONVERTIBLE PAPER MONEY. 169 

his own benefit. The issue of paper money is, in effect, the 
exaction of a seigniorage of one hundred per cent. At times, 
that exaction has been made in cold blood, at the dictate of 
avarice ; at times, and indeed, more often, the exaction has ap- 
peared to be justified, if not sanctified* by some great exigency 
of national life, in which the confiscation of the whole value of 
the circulating coin, through the issue of paper to the same 
amount, has been deemed a measure of resource most fortunate 
and advantageous. 

197. — Without any such stress of fiscal necessities as those 
caused by war, paper money has been frequently issued by 
governments as a fiscal resource, to enable public works to be 
created, to meet an unexpected deficiency of revenue, or even, 
as in the case of some of the early American colonies, to set 
bounties on manufactures or the fisheries. There is always a 
great temptation, to statesmen and to people alike, in times of 
emergency, in the knowledge that it is possible to replace a 
money of high cost by a money of low cost, of cost, indeed, so 
small that it may be called, no cost. 

198. Is it Really Cheap Money ? — That depends on 
whether it be good money or not. The money function is so 

*Hence the phrase "the blood-stained Greenbacks." Lest I should be 
misunderstood, let me say that it is my firm belief that the issue of in- 
convertible paper money is never a sound measure of finance, no matter 
what the stress of the national exigency may be. I believe it to be as 
surely a mistaken policy as the resort of an athlete to the brandy bottle. 
It means mischief always. If there is ever a time whea a nation needs 
its full collected vigor, with a steady pulse, a calm outlook, a hand and a 
brain undisturbed by the fumes of this alcohol of commerce— paper 
money— it is when called to do battle for its life with superior force. It 
is to my mind the highest proof ever afforded of the supreme intellectual 
greatness of Napoleon, that during twenty years of continuous war, often 
single handed against half the powers of Europe, he never was once driven 
to this desperate and delusive resort. I hold any man to be something 
less than a statesman, in the full sense of that word, who, under any stress 
of fiscal exigency, supports or submits to a measure for the issue of paper 
money not convertible at the instant, on demand, without conditions, into 
coined money of its full denominative value. The political arguments by 
which such measures are always supported, on the outbreak of war, seem 
to me the veriest trash, due half to ignorance, and half to cowardice. 



ItO POLITICAL ECOIVOMY. ^ 

important, so vital, in the industrial system, as we have seen 
it, and still more as we shall see it, that there can be no true 
economy in any money but the very best. If the first cost of 
money can be saved, in whole or in part, without loss of efii- 
ciency or safety, that course is unmistakably dictated by the 
same law of the human mind which impels the individual to 
go to his object by the shortest path, or to buy in the cheap- 
est and sell in the dearest market. To use a money which 
has to be dug out of the dej)ths of the earth, drilled and 
blasted out of the solid rock, perhaps at the depth of two 
thousand feet where the water that finds its way through the 
fissures almost boils from the internal fires, when a money in 
every way as good could be made from pajDer-pulp and printed 
with a steam press, would be the extreme of wastefulness. 
On the other hand, to use any but the very best money, that 
which will jjerform the money function in the most perfect 
manner, it matters little what that money may cost, would be 
economy of the sort and degree, not of the man who pur- 
posely eats bad food instead of good, because it is cheaper, 
but of the man who should cup his veins and use half his 
heart's blood to manure his potato field. 

199. Is it, then, Good Money? — I know of nothing in 
the history of inconvertible paper money to indicate that such 
money, when issued, e. g., of a denominative value not to 
exceed, at any rate not greatly to exceed, the mint-A'alue of 
the coin which would have circulated in the community under 
the law for the territorial distribution of money which has 
been stated, may not sei've as the general medium of 
exchange, so far as the internal trade* of a country is con- 
cerned, in every way as satisfactorily as the coin itself. 
Indeed, if any preference exists between the two, it will 
rather be in favor of the paper money, as more convenient 
to handle, more readily transported, more successfully con- 
cealed in emergencies. 

Moreover, it has, I think, been sufficiently shown that what- 
ever acts as the general medium of exchange, in the very act 

*Tlic relations of incouveniljlc paper money to iorcigu trade and 
inlernatioual exchanges will be spoken of in paragraph 203. 



INCONVERTIBLE PAPER MONEY. 171 

of doing this performs the function of a common denominator 
of values, furnishing a price-current in which the values of all 
commodities are expressed in terms of that one article, thus 
enabling comparison of prices to be readily and confidently- 
made as between any two or more commodities. 

But as regards the function of a standard for deferred pay- 
ments, a wide difference may exist between two articles which 
might, Avith equal convenience, be used as the medium of 
exchange ; or it might happen that an article having a decided 
preference in the latter function might be found far inferior in 
the former function, and might even be miserably deficient in 
the requisites of a standard of deferred payments. Let us, 
then, enquire further respecting inconvertible paper money, on 
this score. 

200. Inconvertible Paper Money as the Standard of 
Deferred Payments. — In the fact that this money has no 
natural cost of production corresponding at all to its value? 
lies the possibility, not merely of gross injustice as between 
individuals and classes of the community, which is not an 
economical consideration, but also of grave industrial evils, 
and even of industrial disasters of the most appalling charac- 
ter. Mr. Ricardo has rightly said that, by limiting the sup- 
ply, any degree of value can be given to the money of a 
country, be it of gold and silver or of paper; but in the case of 
the latter no limitation of the supply is set by natural forces, 
as in the case of precious-metal money. Paj)er money has no 
cost of production. The expense of printing a dollar bill is 
so small, in comparison with its denominational value, that, 
for purposes of economical reasoning, it may be disregarded 
altogether, while the expense of printing a ten-dollar bill or 
a hundred-dollar bill or a thousand-dollar bill is no 
greater. The limitation of supply in the case of such 
money, therefore, must be left to law, convention, or 
accident. "We have seen that it would require many 
years of highly stimulated production to affect appre- 
ciably the world's stock of the precious metals, and, by con- 
sequence, the value of those metals. The cereal grains, indeed, 
being consumed in one or two years after their production, 



173 POLITICAL ECOJSrOMV. 

may be increased in quantity more rapidly, say, twenty or thirty 
per cent in a year, as the result of exceptionally abundant har- 
vests ; yet even here, human volition only controls the ele- 
ments of production to a limited extent; and increase on such 
a scale could not be carried forward more than two or three 
years at the furthest. In the case of paper money, however 
the stock may be increased, at the will of the issuer, to any 
extent, within the briefest period. The quantity may be 
trebled, decupled, centupled, by the operations of the printing- 
press, faster even than it can be paid out over the counters of 
the treasury. 

201. Domestic Effects of Inflation. — The value of money 
depending, as has been shown, upon the relation of supply to 
demand, an increase of issues implies a loss of value in each 
given quantity of money. This involves a corresponding loss 
to all creditors, and a corresponding gain to all debtors, whei'e 
money has been made, as in the vast majority of cases it 
always will be, the measure of the claim of the one and of the 
obligation of the other. This result, being brought about by 
legislation or by the act of the prince, is properly termed con- 
fiscation. So far as it concerns only the existing body of 
debts, the question of confiscation is of interest only from the 
point of view of political equity. But such a measure also 
becomes a highly destructive force Avithin the field of industry, 
dealing si grievous blow at the instincts of frugality in the 
individual, and at the organization of the industrial body for 
purposes of production and exchange. It would be an insult 
to the intelligence of the reader to argue this question. 

Such a blow once dealt might in time be recovered from; 
but if new fiscal exigencies of the government, or the wolfish 
howls of the debtor class around the doors of the legislature 
draw out other issues of inconvertible jiaper, not only will 
the value of the money continue to sink, through excess of 
supply, but another cause will begin to work in the same 
direction. The money demand will receive a shock such as 
has been described in j^ar. 182, which may operate slowly and 
continuously, or may produce a sudden collaiDse of the circu- 
lation, the treasury crowding out the paper upon a reluctant 



INCONVERTIBLE PAPER MONEY. 173 

and indignant people, who will none of it; who, through 
experience of grave losses in the past, shun it as they would 
the plague, contracting their industry, or changing its form 
at whatever sacrifice, or resorting to barter, in spite of all its 
inconveniences, to avoid the use of the detested money. This 
was the fate, at the last, of the American " Continental 
Currency," and of the " Assignats " and " Mandats " of the 
French revolution. 

Such are the possibilities attending the issue of paper money 
by government. It may be asked what are the probabilities 
of the case ? As we have here reached the limit of strictly 
economical enquiry, I prefer to postpone our answer to this 
enquiry to Part VI., where, under the title "Political Money," 
the subject will be briefly treated in its political and historical 
aspects. 

202. Inconvertible Paper Money and Foreign Exchanges. 
— But before Ave leave the topic of inconvertible paper 
money, Ave have to view another phase, viz., its relation to 
International Exchanges. Thus far, we have spoken of the 
issue of paper money by government, only in its effects ujjon 
domestic trade aud production. We are now to consider 
its influence upon the commercial relations of the issuing 
country with foreign countries. 

By the mere fact of the adoption of this kind of money, a 
country loses all the advantages of an automatic regulation 
of the money supply through the normal movements of trade. 
Paper money finds no outlet in international commerce. It 
cannot be exported and retain its value. Hence its regulation 
becomes purely mechanical. Having no natural cost of pro- 
duction, it will not, if in excess in any country, flow away in 
obedience to the law which governs the distribution of a 
money having acceptance abroad equally as at home; but, if 
issued in excess, it can only be removed by being pumped 
out by the same force Avhich originally issued it, at least 
until the stage of utter popular repudiation is reached, as in 
the case of the United States in 1780 and France in 1796. 

Even where the excess of such papei money over what would 
have been that country's distributive share of the world's money 



174 POLITICAL ECONOMY. 

be not enough to produce grave disturbances of domestic 
industry, the effect on foreign ti'ade will yet be momentous. The 
immediate result of any excess must be to establish a premium 
upon that metallic money in which alone foreign balances can 
be paid. 

To one who is not familiar with the largest oj)erations of 
commerce this may seem a small matter ; yet, if we may trust 
those who are best qualified to decide such questions, the 
money of a commercial state cannot depart, even by the nar- 
rowest interval, from the money in which international balances 
are discharged, without creating obstructions, exciting appre- 
hensions and even occasioning losses, to which modern trade, 
with its highly developed and acutely sensitive organization, 
will not submit, or will do so only upon the payment of heavy 
fines by the offending community. 

During the German war, and for some years after, viz., from 
1871-1877, the notes of the bank of France Avere inconvertible ; 
yet such was the sagacity and prudence of the directors of that 
institution that at no time was there any considerable discount 
on that money, the premium on gold being often but a small 
fraction of one per cent. Yet, slight as was the disturbance 
of the domestic circulation thereby produced, Mi\ Bagehot in 
his standard work, Lombard Street, written during the jjeriod 
of suspension, attributes to it the most momentous conse- 
quences. 

" The note ot the bank of France," he says, " has not, indeed, 
been depreciated enough to disorder ordinary transactions. 
But any depreciation, however small, even the UahUlty to 
depreciation, vntJiout its reality, is enough to disorder exchange 
transactions. They are calculated to such an extremity of 
fineness, that the change of a decimal may be fatal, may 
turn a profit into a loss. Accordingly London has become the 
jsole great settling-house of exchange transactions in Europe, 
instead of being, as formerly, one of two. 



CHAPTER V. 

BANK MONET. 

203. The Characteristics of Bank Money.— To secure the 
superior convenience of paper money, and, in a degree, also, its 
cheapness, as contrasted with money of metal, while retainino- 
the comparative stability of value which characterizes the latter, 
and to keep the local circulation in such close communication 
with the general circulation of commerce as to ensure the 
automatic regulation of the money supply, bank money has 
been invented. 

The essential characteristic of such money is that the paper 
is instantly convertible, on the demand of the holder, into 
coined money. Whenever, by the unrebuked and unpunished 
lapse of the banks issuing paper money, as so frequently in the 
early history of the United States, or by the action of govern- 
ment upon its own initiative and for its own purposes, the 
money so issued fails to be convertible to the full extent indi- 
cated, even by only so much as the interposition of a condition 
to payment, or of delay in payment, it becomes inconvertible 
paper money in the full sense of that term as used in the pre- 
vious chapter. There is nothing that entitles paper money to 
be called bank money except full, instant, unconditional redemp- 
tion in coin. There is no stopping place between this condi- 
tion and that of inconvertibility. 

Generally speaking, this sort of money is issued by institu- 
tions which, whether under State patronage or not, are so far 
disconnected from the government that their officers and 
agents can be sued in courts, and their assets and effects be 
attached for the recovery of the amount promised by the 
bank notes to be paid on demand. In this matter of connec- 
tion with the State, however, there is found among banks, in 
one country or another, every degree from least to largest; 
aud in some instances the true character of bank money has 
been carefully preserved in the case of institutions having 
what would appear a dangerously close connection with gov- 
ei'nment. 



176 POLITICAL ECONOMY. 

204. The Origin of Bank Money. — Bank money in the 
modern sense of the term* was first issued in Sweden, in 
1658. The Bank of Scotland issued £1 notes as early as 1704, 
while the Bank of England did not issue notes below £20 
prior to 1759. The issue of bank money, proper, did not 
begin in America until after the revolution, although nearly 
every colony had been, at one 23eriod or another, deluged with 
inconvertible paper money, under nearly every conceivable 
variety of form and of pretense. The great bank money coun- 
tries of to-day are the United States and the States of North- 
western Europe. 

205. The Coin Basis of Bank Money.— We have said that, 
in addition to the superior convenience of bank money over 
coin, the motive for issue is found in its comparative cheap- 
ness. Banking experience has shown that a much larger 
denominative amount of notes can be kept in circulation than 
is held of specie for redemption. 

On all this excess, the issuer of the notes derives a profit 
Avhich is measured by the rate of interest on his loans, after 
deduction is made of the expense of maintaining the service. 
The metal thus displaced from circulation is exported, or 
melted down for use in the arts. 

The advantage to the community of this saving in the cost 
of the money used in effecting exchanges, is thus conceived by 
Adam Smith. 

" The gold and silver money which circulates in any coun- 
try may very properly be compared to a highway, which, 
while it circulates and carries to market all the grain and 
corn of the country, produces itself not a single pile of cither. 
The judicious operations of banking, by providing, if I may 
be allowed so violent a metaphor, a sort of wagon-way 
through the air, enables the country to convert, as it were, a 
great part of its highways into good pastures and cornfields, 
and thereby to increase very considerably the annual jjroduce 
of its land and labor." 

* The term bank money lias been applied to the credits inscribed on the 
books of the Bank of Amsterdam, chartered in 1G09, of which we shall 
have occasion to speak — under the title, Banks — iu i^art VI. 



THE SPECIE RESERVE. 177 

The amount of saving effected by the introduction of bank 
money varies, in the first instance, according to the proportion 
of coin, or " specie," as it is commonly called, which has to be 
reserved to meet demands for the redemption of the notes: to 
serve, that is, as the basis of the circulation. 

That proportion is different in different countries, and often 
in different banks in the same country. The most common 
legal minimum reserve is one-third. In Leipsic, before the 
unification of Germany, the specie reserve was two-thirds, 
while in Bavaria it was but one-fourth. The Royal Bank of 
Prussia, before it was merged in the New Imperial Bank of 
Germany, actually held in specie not less than seventy-two 
per cent, of both its circulation and its deposits. 

Before the war of secession, the banks of the United States 
held an absurdly, almost insanely, small amount of specie, 
the proportion in some States falling to ten, five, or even three 
per cent. But the so-called bank money of many of the 
States of the American Union, during certain periods in the 
early history of the nation, was really nothing but inconvertible 
money, hardly the pretence of redemption being maintained.* 

*" No person," says Mr. Fullartou, " who has given any attention to 
the evidence respecting the state of the American paper circulation, will 
affirm that, even previous to the universal and spontaneous suspension 
of cash payments, in May, 1837, that circulation was really and practi- 
cally convertible." — [The Regulation of Currencies]. 

Mr. Condy Raguetthus describes the action of American banks during 
this period, when in a state of suspension: 

"Banks, when they default in their payments, not only never ask the 
indulgence of their creditors for any specified extension of time, but 
they do not even think themselves under obligation to pay interest to the 
creditors for the funds they forcibly detain from them; nay, they fre- 
quently, in the midst of their insolvency, declare dividends of the very 
profits which actually belong to their creditors." 

Of an earlier period Mr. Gallatin has written: "It was the catas- 
trophe of the year 1814 which first disclosed not only the insecurity of 
the American banking system, as then existing, but also that, when a 
paper currency driving away and superseding the use of gold and silver, 
has insinuated itself through every channel of circulation, and become 
the only medium of exchange, every individual finds himself, in fact, 
compelled to receive such currency, even when depreciated more than 
twenty per cent., in the same manner as if it had been a legal tender." 
12 



178 POLITICAL ECONOMY. 

206. The Theory of Bank Money,— The view of the opera- 
tions of bank money which is held by the great majority of 
writers of repute, in nearly all countries, is that, when really 
convertible into coin on demand; with all reasonable facilities 
existing for redemption, and with redemption actually taking 
place from ti-ae to time ; with a public opinion which does 
not allow to be questioned the right of any man anywhere, 
for any reason or for no reason, to require coin, for any and 
all notes he may hold ; and with exemplary penalties,* pro- 
vided by law and enforced by the courts, for the first failure 
or the slightest delay on the part of banks to make good their 
promises, such money acts in all respects precisely as would a 
body of money composed wholly of coin of full mint-value. 
It is held to be fully subject to the law which governs the terri- 
torial distribution of money consisting of the precious metals 
only ; and to have every economical virtue which belongs to 
such money, with the added advantage of greater cheapness 
and greater convenience in use. 

" We are willing," says Mr. Tooke, the great leader of the 
school of economists known as the advocates of the " Banking 
Princijjle," whose theory of bank money I have stated, "we 
are willing to consider a metallic currency as the type of that 
to which a mixed circulation of coin and paper ought to con- 
form. But, further, we contend that it has so conformed, and 
must so conform, while the paper is strictly convertible." 

The same opinion is exj^ressed, with great emphasis, by 
Mr. Fullarton and Mr. James Wilson, and by M. Courcelle- 
Seneuik 

*" By convertibility of tlie paper," says Mr. Tooke, "according to 
the ordinary signification of the terra when applied to bank notes in this 
country (England), is meant that the holder of a promissory note — pay- 
able on demand — may require payment in coin of a certain weight and 
fineness, and in the event of refusal or demur, such payment is 
enforced by law against the issuer, to the utmost extent of his property. 
The issuer, wheffier a private w joint stock banker, is considered to have 
failed. The circulation of his notes is at an end, and he is subject to the 
process usual in cases of insolvency." — [History of Prices.] Compare this 
with the state of things disclosed by Mr. Raguet in the foot-note last pre- 
ceding. 



THE '' CURRENCY PRINCIPLE." 179 

207. An Opposing View of Bank Money.— The view of 
bank money which has been stated in the foregoing paragraph, 
is undoubtedly that which is held by a decided majority of 
writers of reputation in monetary science. An opjiosite 
opinion was long maintained by a school of economists in 
England, comprising the advocates of the so-called " Currency 
Principle," the leader of the school being Lord Overstone. 

In the view of this school, something more than sound 
banking is needed to give a country good bank-money. If 
numerous, competing banks are left free to issue notes in such 
quantity and of such denominations as their own interests may 
dictate, with such specie reserves as their own prudence alone 
may suggest, there will always be the probability and often 
an extreme danger of over-issue, a body of bank money so 
composed not being amenable wholly to the law of distribu- 
tion which governs metal money, but possessing the capability 
of temporary and local inflation, producing for a time, and in 
a degree, the effects of inconvertible paper money. 

This opinion was ably maintained by Lord Overstone, Mr. 
Norman and Col. Torrens, against the views of the Bank of 
England, and after a long struggle, the economists of this 
school triumphed in the enactment of the Bank Act of 1844,* 
which still governs the note-circulation of England, though 
the principle on which it was framed is now challenged, with 
increasing freedom and boldness, by many of the best finan- 
ciers of the kingdom. 

In the United States, owing doubtless to gross abuses of the 

* The principal features of the act of 1844, as affecting the circulation, 
are as follows : Ist. The Bank of England is allowed to issue notes, in a 
constant sum of £15,000,000 without any specie basis. For all notes 
above this, it must have., pound for pound, a specie reserve, of which 
one-fourth may be silver [This, in consideration of the commercial and 
political relations of England with India, which has silver money.] 

2ud. The issue department and the banking department of the Bank 
are completely divorced, becoming as separate as the Customs and the 
Internal Revenue bureaus of our own government. 

3rd. No Loudon bank can issue notes, nor can any bauk chartered 
since 1844 ; while the issues of the English banks then existing are lim- 
ited to their ordinary outstanding circuiation prior tc that date. 



180 POLITICAL ECONOMY. 

right of bank-note issue, such as have been adverted to in a 
note on a preceding page, the views of the English currency- 
school obtained an acceptance among professional economists 
and writers on finance even wider and more complete than in 
England, although in but few states did this lead to legisla- 
tion in any degree comparable, in scope or stringency of opera- 
tion, to the English act of 1844 The leading Avriters on this 
question in the United States, were Messrs. William M. Gouge, 
Condy Raguet and Araasa Walker. 

208. The Currency Principle vs. the Banking Principle.— 
The question whether a body of money composed partly of 
coin and partly of bank notes fully convertible into coin, with 
all which that implies as stated in par. 206, acts in all respects 
as would a body of money composed wholly of coin, or, on the 
other hand, has the capability of being issued in local excess 
and so maintained for a long enough time to affect local prices, 
and thus initiate abnormal movements of trade and production 
predicated on such excess, I regard as the one open question in 
the theory of money. Brought up in the school which held the 
latter view, my own reading and reflection have confirmed me 
in the belief that there resides in bank money, even under the 
most stringent provisions for convertibility and the severest 
penalties for a failure to redeem notes, upon demand, the 
capability of local and temporary inflation, as that term is 
defined in par. 186 ; but the ai-guments on the two sides of the 
question are so evenly balanced, and the statistical evidence 
adduced to support the one or the other is so ambiguous, that 
differences of opinion are likely long to exist between men of 
intelligence and candor. I freely confess that the preponder- 
ance of authoritative opinion in Europe is against the view 
which I hold. 



CHAPTER VI. 

THE KEACTION OF EXCHANGE UPON PRODUCTION. 

209. Evil Possibilities involved in the Division of Labor.— 

We have seen that the division of labor is an essential condi- 
tion of large and varied production. But the division of labor, 
when carried far, involves possibilities of loss and disaster, 
which become more and more serious as production becomes 
more and more extended and complicated, until, in the most 
highly organized industrial state, we have to explain the failure 
of a community to realize their full productive capability, 
mainly by reference to industrial misadventures and even, at 
times, a partial paralysis of the productive powers of the com- 
munity, originating in this source. 

The cause of the trouble adverted to is found in misunder- 
standings between producers and consumers whom it is the 
very nature of the division of labor to set apart, and, in an 
advanced industrial state, to set very widely apart, often by 
half the circumference of the globe. 

210. It is evident that, were there no division of labor into 
separate occupations, the relation between production and 
consumption would be a very simple one. Production would, 
within the capabilities of the several agents concerned, viz., 
land, labor, and capital, only be limited by the effective desire 
of the several individuals of the community to consume wealth, 
Each man would work by himself, for himself, producing those 
things, and those only, which he wished personally to eat, 
drink or Avear, or house or warm himself withal. There would 
here be no question of a market, for every man would be his 
own customer. 

From this point, we may Inark off three stages of industrial 
development. 

The first is where distinction of trades is introduced, and 
men no longer consume all, or perhaps any part, of the arti- 
cles they have produced ; yet where consumers live near the 
producer, and are personally known to him. In this condi- 
tion, production, except in agriculture, generally waits for an 



183 POLITICAL ECONOMY. 

order from the consumer ; or, if goods are produced in 
advance of an order, the kinds are few, the forms are simple, 
the styles standard, and there is generally the reasonable ex- 
pectation that some certain person, or some one out of a cer- 
tain group of persons, will surely and soon need the goods, 
and Avill become the consumer. Here, we see, there is not 
much liability to a misunderstanding between producer and 
consumer. 

211. The second stage is where the element of personal 
acquaintance between producer and consumer disappears. Pro- 
duction no longer waits for orders, but anticipates demand. 
Goods are produced for a general market, and upon a calcu- 
lation of the quantity probably to be required. The individ- 
ual producer has no longer his own circle of customers ; but 
comj)etes with other producers for the largest possible share 
of the patronage of a wide circle of consumers. Yet it is still 
true that proeiuction is mainly carried on by artisans working 
singly or in small groups. Tools and implements are still 
simple and inexpensive ; there is little of " plant" or fixed 
capital ; while of the products we may say that fashions are 
few and styles remain standai"d through long periods of 
time. Here, manifestly, the opportunity for misunderstand- 
ings between producer and consumer exists in a much higher 
degree than under the former conditions described ; yet here 
production may still go on with tolerable uniformity : all 
hands working steadily through all the seasons of the year, 
with a reasonable assurance that all goods which are well 
made and offered at fairly remunerative prices, will find a 
market. 

212. The third stage is reached, when increasing facilities 
of communication make the whole world one trading com- 
munity ; when production becomes highly diversified, and the 
specialization and localization of trades jn'oceed so far that 
one country, or perhaps one group of towns, or even a single 
town, produces the greater part of all the goods of a certain 
sort which are consumed throughout the world ; when luxury 
and refinement of living are carried to the maximum, so 
that not only are the classes of goods produced multiplied 



THE OR GA NIZA TION OF IND US TR Y. 183 

almost indefinitely, but fashions and modes enter till standard 
styles almost disappear, each season bringing minute modifi- 
cations of demand which are not to be satisfied except by an 
exact compliance, even the colors and shades of one year 
becoming intolerable the next. 

It will readily appear that conditions like the foregoing 
increase enormously the liability of misunderstanding between 
producers and consumers. The possibilities of error in sup- 
plying the markets, no longer of a village, but of the world, 
become tremendous. 

213. But it must further be added, before we can get a 
full measure of the industrial evils that may occur in 
such a state of things, that powerful and complicated 
machinery is now introduced into almost every branch 
of production, and costly structures and "plant" are required; 
great numbers of operatives, of both sexes and all ages and 
of every degree of strength and skill, have to be gathered 
under one roof, each knowing only his or her own part of the 
processes of production, all requiring to be instructed and 
equipped, organized, energized, and directed by the intelligence 
and the will of one man. In other words, we have reached the 
entrepreneur stage * of industrial development. 

The introduction of the principle of mastership into indus- 
try makes a great gain of productive power ; but this gain is 
not secured without an appreciable loss. The entrepi-eneur 
(to anticipate, for a moment, a topic in Distribution), finds 
his motive for organizing and conducting the great enter- 
prises of modern industry in the profits which he hopes 
individually to realize. His entire personal interest in pro- 
duction is found here. It is, perhaps, to secure a net profit to 
himself of fifteen or twenty thousand dollars, that he leases 
land and buildings, and borrows capital, and hires the labor 
requisite to achieve an annual product of half a million of 
dollars. If then, the conditions of trade and industry are 
such as to destroy for the time his profit ; much more if they 
are such as to threaten a loss which will impair the integrity 

* See pars. 89-91. 



184 POLITICAL ECONOMY. 

of the capital for which he has become responsible, his inter- 
est in production is greatly diminished, if not destroyed ; he 
will either cease producing entirely, or, which is more likely, 
will contract the scope of his operations. Were he to produce 
1500,000 worth, as heretofore, a small fraction of his stock 
unsold might sweep away his own gains for the year, or leave 
a deficit ; whereas, were he to produce but $400,000 or 
$350,000 worth, he would probably dispose of his stock at 
prices high enough to make himself good and perhaps leave a 
small margin of profit, while, at the same time, holding his 
laboring force and his customers together. 

214. Fluctuations in Production. — Such being the con- 
ditions under which production takes place, under the modern 
organization of industry, we note that there is in the nature 
of the case a continuous loss through the failure of the pro- 
ducing body to meet, promptly and precisely, the demands of 
the body of consumers. Wherever, from any cause, there is a 
failure correctly to anticipate those demands and supply them 
perfectly, in time, in degree, in form, loss of value results. 
That there should be such failure in part, is inevitable under 
the very trying conditions of production which have been 
described. 

But the loss which we had chiefly in view in beginning this 
chapter, and with reference to which we have written this 
long introduction, is not the steady, continuous loss of value 
due to the inability of those who direct production to com- 
prehend, fully and seasonably, the varying demands of distant 
markets, but the occasional loss resulting from the frequent 
and often furious fluctuations which are involved in the 
modern organization of trade and industry. 

From that organization the alternation of highly stimu- 
lated and of deeply depressed production appears to be insep- 
arable. The course of trade and industry through the cycle 
which the conditions of modern life seem to have established, 
is so well described by Prof. Alfred Marshall, in the admirable 
little work from which I have so often quoted, that I cannot 
forbear to give it in full : 

"The beginning of a period of rising credit is often a 



THE PROGRESS OF SPECULA TION. 185 

series of good harvests. Less having to be spent in food, 
there is a better demand for other commodities. Producers 
find that the demand for their goods is increasing, they 
exjject to sell at a profit, and are willing to pay good prices 
for the prompt delivery of what they want. Employers com- 
pete with one another for labor; wages rise; and the employed 
in spending their wages increase the demand for all kinds of 
commodities. ISTew public and private companies are started, 
to take advantage of the promising openings which show 
themselves among the general activity. Thus the desire to 
buy and the willingness to pay increased prices grow 
together; credit is jubilant and readily accepts paper prom- 
ises to pay. Prices, wages and profits go on rising; there is 
a general rise in the incomes of those engaged in trade; they 
spend freely, increase the demand for goods, and raise prices 
still higher. Many speculators, seeing the rise, and thinking 
it will continue, buy goods with the expectation of selling 
them at a profit. At such a time a man who has only a few 
hundred pounds can often borrow from bankers and others 
the means of buying many thousand jiounds' worth of goods; 
and every one who tints enters into the market as a buyer, 
adds to the u|)ward tendency of prices, whether he buys with 
his own or with borrowed money. 

" This movement goes on for sometime, till at last an enor- 
mous amount of trading is being carried on by credit and with 
borrowed money. Old firms are borrowing, in order to extend 
their business ; new firms are borrowing in order to start 
their business; and speculators are borrowing, in order to buy 
and hold goods. Trade is in a dangerous condition. Those 
whose business it is to lend money are among the first to 
read the signs of the times ; and they begin to think about 
contracting their loans. But they cannot do this without much 
disturbing trade. If they had been more chary of lending at 
an earlier stage, they would simply have prevented some new 
business from being undertaken ; but when it is once under- 
taken, it cannot be abandoned without a loss of much of the 
capital that has been invested in it. Trading companies of all 
kinds have borrowed vast sums with which they have begun 



186 POLITICAL ECONOMY. 

to build railways and docks and ironworks and factories ; 
prices being high they do not get much building done for their 
outlay ; and though they are not yet ready to reap profits on 
their investment, they have to come again into the market to 
borrow more cajjital. The lenders of capital already wish to 
contract their loans ; and the demand for more loans raises the 
rate of interest very high. Distrust increases; those who have 
lent, become eager to secure themselves and refuse to renew 
their loans on easy or even on any terms. Some speculators 
have to sell goods in order to pay their debts ; and by so doing 
they check the rise of prices. This check makes all other 
speculators anxious, and many rush in to sell. For a specula- 
tor, who has borrowed money at interest to buy goods, may 
be ruined if he holds them a long time even while their price 
remains stationary ; he is almost sure to be ruined if he holds 
them while their price falls. When a large speculator fails, 
his failure generally causes that of others who have lent their 
credit to him ; and their failure again that of others. Many 
of those who fail may be really ' sound,' that is, their assets 
may exceed their debts. But though a man is sound, some 
untoward event, such as the failure of others who are known 
to be indebted to him, may make his creditors suspect him. 
They may be able to demand immediate payment from him, 
while he cannot collect quickly what is owing to him ; and the 
market being disturbed he is distrusted ; he cannot borrow, 
and he fails. As credit by growing makes itself grow, so 
when distrust has taken the place of confidence, failure and 
panic breed panic and failure. The commercial storm leaves 
its path strewn with ruin. When it is over, there is a calm, 
but a dull, heavy calm. Those who have saved themselves are 
in no mood to venture again ; companies, whose success is 
doubtful are wound up ; new companies cannot be formed. 
Coal, iron and the other materials for making fixed capital fall 
in price as rapidly as they rose. Iron works and ships are for 
sale, but there are no buyers at any moderate price. 

" Thus the state of trade, to use the famous words of Loi-d 
Overstone, ' revolves apparently in an established cycle. First 
we find it in a state of quiescence — next improvement, growing 



THE LA IV OF PANICS. 187 

confidence, prosperity, excitement, overtrading, convulsion, 
pressure, stagnation, distress, ending again in quiescence.' " 

215. So frequently during the past hundred years have 
trade and industry made this weary round, that writers on 
finance have undertaken to establish the law of the periodicity 
of panics and hard times ; and many men of business enter- 
tain the notion not only that such disasters must come, but 
that they must come about so often. The term of ten years 
is that most often fixed upon for the completion of the cycle 
which Lord Overstone has so graphically described; and there 
is at least a very curious series of coincidences to give some 
substance to this hypothesis. But whether there are, indeed, 
forces operating which bring about commercial convulsions 
and industrial distress, at regular intervals, or not, it seems 
clear that, under the conditions depicted in the first part of this 
chapter, it is inevitable, the constitution of the human mind 
remaining unchanged, that the producing and exchanging 
body should alternate frequently and even violently between 
a state of depression and of partially suspended activity,, and 
a state of highly animated, excited, almost convulsive exer- 
tion, in which the agencies alike of production and of 
exchange are strained to their utmost to meet demands which 
are stimulated to the highest extravagance by a universal pas- 
sion of speculation. 

216. It is evident that this is not an order of things under 
which the largest production of wealth takes place. The two 
extremes do not offset each other, with the same result as if 
production had been proceeding calmly and equably through 
the entire period. On the contrary, each extreme involves 
great and permanent loss of j)roductive force. There is much 
misdirection of energy, much waste of material, much vital 
injury to labor power and capital power, in the haste and 
strain and fever of highly stimulated effort; while the long, 
dull spell of inactivity that succeeds is not given wholly to 
the recuperation of exhausted energies, the renewal of stocks 
of materials, the repair of machinery and plant; what is more 
than this, it is not even a waste of time, merely, involving a 
proportional loss of productive power; it becomes itself a cause 



188 POLITICAL ECONOMY. 

of waste and mischief; it induces in the working classes a 
lethargy, a despondency, a recklessness, which are forces pro- 
ductive of evil; it generates habits of lounging and of drink- 
ing, perhaps of tramping, which may not be shaken off even 
with renewed employment. 

217. "Hard Times." — Nothing needs to be added, of clear- 
ness or of force, to Prof. Marshall's statement of the course 
which trade and industry run from the time they first cross 
the line of reviving prosperity to the moment they plunge 
into the abyss of broken credit, falling markets, commercial 
panic, failing banks, and general distress. But there is one 
industrial phenomenon of very great significance in respect to 
our question, why the actual production of a community 
comes so far short of its productive capability, which econo. 
mists have not been accustomed to explain; and that is, the 
long continuance of the periods of industrial depression and 
of restricted production. 

It will readily appear that, after running such a rig as has 
been described, the agencies of trade and industry will require 
time to refit; that the track must be cleared of the wreck, 
and the j)laces left vacant by the casualties of the great crash 
must be filled by new men; but the actual time covered 
by the period of depression is sometimes much longer than 
can be accounted for by the mere loss and wreckage of a 
panic. " Hard Times " are j^rotracted long after the capital 
power and the labor poAver of the community are in condition 
to resume their interrupted functions. 

After the panic of 1873 in the United States, industry 
did not revive, to reach anything like its former proportions, 
until 1878 or 1879. During all that period vast amounts of 
labor power and capital poAver remained unproductive. Tens 
of thousands, if not hundreds of thousands, of laborers Avere 
unemployed; an even greater number Avere employed only 
on half or three-quarters time. Hundreds of furnaces Avcre 
out of blast; thousands of Avater wheels ceased to turn; thous- 
ands of engines stood still. Yet, during all this time, all 
these workmen had occasion to consume food and clothing for 
themselves and their families; needed to Avork to earn the means, 



HARD TIMES. 189 

and were honestly willing, yea, heartily desirous to work. All 
this time all these owners of capital were ready to secure a 
return for their investments, if they could find opportunity; 
all these conductors of business were eager to win a profit by 
employing their abilities and experience in productive industry. 
Why, then, was it, when all were willing to work and needpd 
to work, that they did not work, perhaps would say, could 
not work ? What was the force that kept all these laboring men, 
all these water wheels and engines, all these capable conduc- 
tors of business, idle during so long a time, so much against 
their interest and their wishes ? What was it that paralyzed, 
year after year, at least one-fourth of the mechanical power of 
the United States ? 

218.* We have seen that, as society makes progress 
towards a minuter organization of industry, productive capa- 
bility is enhanced, but that, coincidently, at each stage, the 
opportunities for misunderstanding between the body of pro- 
ducers and the body of consumers are greatly multiplied, 
Avhile labor power and capital power fall more and more under 
the control of men of exceptional abilities for the conduct of 
business, with whom comes to rest all initiative in production. 

Now, if we examine the list of articles sold in the market, 
in a modern community, we shall find some of them supplying 
wants which are constant and vital. We shall find others 
which minister to the most delicate tastes or gratify only the 
merest casual fancies. In a country like England, France, or 
the United States, tens of thousands of laborers are employed 
in producing articles of the most trivial character, fireworks, 
toys, bonbons, fripperies of dress, while hundreds of thousands 
more are employed m producing articles deprivation of which 
would not induce cold or hunger, or impair health, or be 
incompatible with public decency or personal self-respect. 

219. Let us suppose, as the result of a period of prosperity, 
the variety of products to have been carried to a very high point, 
when a disaster, primarily affecting either industry or trade, 

* The substance of this and the following sections of this chapter is 
contained in the 5lh chapter of my work on " Money in. its Relations to 
Trade and Industry." 



190 POLITICAL ECONOMY. 

it matters not, befalls a community. It may be a great fire, 
or a great flood, or an attack of yellow fever, or the destruction 
of some leading crop. No matter whei'e it comes from, or where 
it first strikes, the immediate effect is to diminish the productive 
power of the community, as a whole. At once the consump- 
tion of those articles which are least essential to comfort and 
decency is, in greater or less degree, checked. If we suppose 
the thousands of articles known to the market to form twenty- 
six groups, A to Z, their utility to the consumer regularly 
declining from the top of the list to the bottom, we may 
assume that the first effect of the calamity will be to reduce 
the consumption of articles forming groups X, Y and Z. No 
matter, as we said, where the blow first falls, the laborers 
affected produce for the time less, and must limit their own 
consumption accordingly, which they do by restricting their 
use of articles below W. 

The labor and capital employed in groups X, Y and Z 
cannot easily or soon be transferred to other groups. The 
laborers, especially, find that the present is no time to seek 
employment in other avocations. They must stay where they 
are, and do the best they can there. Hence they find them- 
selves employed on part time, and at reduced wages. The 
sums they formerly earned were expended in ^^i^i'cliasing 
articles all the way from A to Z. In their sudden jjoverty 
they are obliged to cut off their own consumption of all 
articles except those which are absolutely necessary to comfort 
and decency, say, from A to M, inclusive. 

But this action of producers X, Y and Z involves a 
diminished demand for products, N to W. Each group of 
producers, at this end of the line, are obliged to curtail still 
further their consumption of articles X, Y and Z, while pro- 
ducers from S to W begin to restrict their use of articles 
below T. This action, however, becomes at once the cause of 
new effects. The unfortunate representatives of X, Y and Z 
are now obliged wholly to deny themselves all products from 
IT downwards; producers T to W, in turn have to give up 
indulgence in products below N; producers N to S, in conse- 
quence, no longer purchase products below R. 



PROP AG A TION OF ECONOMIC SHOCKS. 191 

The shock next reaches groups I to M, who have to diminish 
their consumption, to correspond to the reduced demand for 
their own products; X, Y and Z are now glad to get 
enough of A, B, C and D to barely subsist upon; while S, T, 
D, XJ, V and W carry their own retrenchment upwards, till 
they stop at M. And so the movement goes forward until 
the favored producers A to D — favored, in that the articles 
they produce are of vital importance — experience some dimin- 
ution of demand, and, producing less in consequence, have 
less to give in exchange for the products of others. So a 
stone, thrown into a lake, sets in motion a wave which extends 
outwards in all directions till it reaches the banks, even in the 
most retired nook along the shore. 

220. It is evident that, were the community pei'fectly intel- 
ligent and self-possessed, the ultimate result of this play of 
forces would be the distribution of the whole initial shock over 
the entire j^roducing body. But no addition would be made 
to the force of the shock as the movement proceeded, and the 
effect upon each successive group of producers reached 
would be less and less. Those producing articles the most 
essential to life, health and social decency would suffer to 
hardly an appreciable extent, as the wave set in motion by the 
rock thrown into the centre of the lake becomes the merest 
ripple against the shore. 

This is all that is necessarily involved in the propagation, 
through economic media of perfect elasticity, of an original 
blow like that assumed ; and, in fact, industrial injuries are at 
times distributed in this way throughout the producing body, 
without panic, without apprehension, even without observation. 

Let, however, the shock but be sharp and severe, and commu- 
nicated in some peculiarly startling form, and let it occur 
when the public mind is in an anxious, apprehensive mood, or 
when the commercial body is unstrung by political or social 
disturbances ; and we may see the impulse propagated with 
ever-increasing force, from subject to subject, till the move- 
ment acquires fearful violence. 

221. The commercial panic we are all familiar with, by 
experience or report. We know how some slight cause, acting 



193 POLITICAL ECONOMY. 

on the f eai's and imaginations of men, will overthrow the finan- 
cial structure of a nation in a few weeks, perhaps days, pros- 
trating the proudest houses, and spreading ruin far around. 
There is nothing that can stand against panic. One man's fear 
makes another man afraid. One man's fall brings down 
another, who, Tbut for that, might have stood firm ; and so the 
mischief j^roceeds, from bad to worse. 

The progressive aggravation and acceleration of the forces 
of mischief throughout the producing body takes place not less 
surely, though it is here less ostensive. 

A manufacturer feels the denaand for his goods fall off some- 
what. In ordinary times, he would receive the fact as an inti- 
mation to reduce his production ; but only to a corresponding 
extent. Indeed, in good times he would receive that intima- 
tion in a somewhat sceptical spirit. He would not be disposed 
to believe that any serious check was to be experienced. lie 
would look to see trade start up again at the oj^ening of the 
next season, and, in this mood, would reduce his production 
somewhat less than correspondingly. To that extent, he 
would speculate : that is, he would anticipate events and dis- 
count the future. For the moment, then, he would transmit 
the shock,, not aggravated but mitigated. 

But let the shock be at first very severe, and let it come 
upon the public mind in a suspicious mood, and the matter 
will take another turn. The merchant feels the demand for 
his goods fall- off abruptly. He fears there is more to come. 
He is determined not to be caught with a large stock on his 
hands, and, therefore, in his orders to the manufacturer, he 
exaggerates the natural and proper effect of the change in the 
market. The manufacturer, on his part, knows nothing 
directly of the actual falling off in demand. He only learns it 
as it comes to him heightened by the apprehensions of the mer- 
chant. In his turn, he exaggerates the evil and reduces his 
production more than proportionally. His anxiety now is, 
not to make a jbrofit ; but to avoid loss. He knows he will be 
safe if he runs his mill on half or three-quarters time ; he 
rightfully fears that he may suffer severely if he runs full- 
time. 



EXAGGERATION OF ECONOMICAL SHOCKS. 193 

And it is here that the cause indicated in par. 213, begins to 
operate with great and destructive force. The entrepreneur's 
j^ersonal concern in production being derived wholly from his 
contemplated profit, which may be but a small percentage 
of the value of the goods habitually produced, his individual 
interests may, for the time, become completely divorced from 
those of his laborers or of the general community ; and in his 
anxiety to save himself, he may act with as much need- 
less cruelty as men do when panic-stricken in a fire or a 
wreck. 

222. But the action of manufacturer Z, whether wisely or 
unwisely taken, even were it the result of a senseless fear or 
of an outright delusion, becomes, as we have seen, an element 
in the conditions of production for all the lower letters of the 
alphabet. As he pays less wages, his workmen have less to 
spend for the products of other branches of industry. The 
merchants in these lines, feeling the falling off in demand, 
exaggerate it in their orders to manufacturers, especially 
manufacturers X and Y. These, in turn, apj)rehensive of 
worse to come, curtail their operations more than correspond- 
ingly, and so the movement proceeds, with continually 
increasing violence. 

And, let us rejjeat, however unnecessary Z's action in reduc- 
ing his production below a certain ]3oint, yet, if he actually 
does so, that action makes a corresponding reduction in X and 
Y's operations a necessity of their situation: just as truly so 
as if Z had a good reason for what he did. And if, in 
turn, X and Y become alarmed, and overdo the thing, that of 
itself constitutes an obligation upon manufacturers higher in 
the alphabet to cut down work and wages, 

223. HowPar may this be Carried?— Two questions arise 
upon this view of the jDOwer of apprehension and suspicion to 
aggravate the force of any industrial or financial shock in 
cliecking production. The first: how far may it be carried ? 
the second, how long may it last ? 

May the movement to check production proceed until all 
industry is locked fast in " a vicious circle ": no one producing, 
because others will not consume, while no one is able to con- 
13 



194 POLITICAL ECONOMY. 

sume the products of others because he himself produces 
nothing with which to buy them ? 

I answer, no. The staple industries, especially those yield- 
ing the absolute necessaries of life, will never be suspended. 
The demand for their products is so constant and certain that 
panic has little power over them. Groups A to D will, there- 
fore, continue to produce nearly as much as before; not, 
indeed, quite so much, because there will be individuals, 
thrown out by the revolution at the foot of the alphabet, 
who are unable to find a new place where they can produce 
enough to purchase even the barest subsistence. Groups E 
to H, or K, moreover, having to do with articles essential to 
comfort and social decency, will withstand the shock com- 
municated to them sufficiently to maintain a production not 
very far below that of good times. 

Now, so long as A to D produce liberally, and E to H or 
K, still produce considerably, all persons employed within 
those groups will have the means of purchasing freely the 
products of groups further down the list; and so industry 
will be kept alive, though but just alive, it may be, in those 
groups which produce articles not essential to life, or health, 
or decency. 

224. How Long may such a Condition last ? — I answer: in 
theory, it may last indefinitely. Practically, it is liable to be 
terminated, after a longer or shorter j^eriod of suspense, by 
reviving courage and enterprise on the part of men of affairs, 
or through the stimulus to production administered .t'rom, it 
may be, some unex^jected quarter. It may be so slowly as to 
be almost imperceptible; it may be so rapidly as to outrun 
calculation, that the exj^ansion takes place. This will depend 
much on the natural temper of the community; much on the 
immediate cause provoking renewed enterprise; much on acci- 
dent. 

The one essential condition is that speculation be initiated, 
that is, that men begin to look ahead, to anticipate demand, 
and to discount the future. 

One man begins to produce, no longer on orders, no longer 
cautiously and fearfully, as if it were too much to believe 



RECO VER V FROM HARD TIMES. 195 

that his goods will be taken off his hands, but in a more san- 
guine sj)iritj assuming the initiative in j^roduction, and boldly 
encountering its risks. Producing more largely, his workmen 
have more to offer for the products of other industries, which 
is of itself a reason for a larger production in these branches, 
whose managers and proprietors respond in the same spirit. 
Finding the demand increasing, they act as if they believed it 
was about to increase still further. They produce somewhat 
in antici]3ation, and thus give their hands more to offer in 
exchange for the products of still other industries; and so the 
movement proceeds, gathering force as it goes, and j^roduc- 
tion swells continually under the contagious influence of hope 
and courage, just as before it shrank and shrivelled under the 
breath of fear and panic. 

I have said that peculiarities of national character have 
much to do with the speedy or tardy revival of production. 
Nowhere ought recovery to be more rapid than in the United 
States; for among no people is there more of elasticity, in 
respect of courage and hope, greater alertness of action, more 
readiness to assume responsibilities and to run risks. No- 
where, too, does nature afford an ampler margin for subsist- 
ence, or more abundant material for the repair of mistakes 
and misadventures. 

The history of the panic of 1857 offers a capital illustration 
of the facility with which the American people recover from 
the sharpest contraction of productive industry, where noth- 
ing withstands the revival of trade, and where no second 
shojk remains to be exjjerienced. The country was in 
a generally sound condition, both as to capital and 
credit, when the blow fell. As the result, industry !had 
scarcely shrunk to its minimum, under the baleful influence 
of panic, when the enterprise and courage of merchants and 
manufacturers began to cause expansion; and within a few 
months our production was again at the limits of our capital 
power and labor power. 

When the panic of 1837 came, the country was in a 
wretched condition, through the misapplication of capital and 
the wide extension of credit. 



196 POLITICAL ECONOMY. 

The buoyancy of the national temper led, even at this time, 
to a speedy reviA-al; but the succeeding shock of 1839 threw 
the country back again, and the fear and distrust thereby 
engendered kept the energies of the nation in a state of par- 
tial repression through a long, weaiy pei'iod extending down 
to 1843. Such may be the influence of a single instance of 
hard fortune ujjon reviving industry. 

Quite as j)rejudicial to expanding production is the contin- 
ual apprehension of hostile or meddlesome legislation. When 
the whole body of business men are sore from disasters ; when 
much of the industrial and commercial structure still lies in 
ruins, it takes but little to check the disposition again to 
adventure capital, the more valued and the more anxiously 
considered because of losses already sustained. That little is 
abundantly supplied by the popular aj^prehension of legisla- 
tion unfavorably affecting money and credit. 



PART IV. 
DISTRIBUTION 



CHAPTER I 

THE PARTIES TO THE DISTRIBUTION OP WEALTH, 

225. Distribution as a Department of Political Economy. 
— Under the title, Distribution, we enquire, what are the 
forces which divide wealth among the several persons, or 
classes of persons, who have taken part in its production ? 

In a primitive condition of society, the problem of distri- 
bution is a very simple one. Three hunters join in an 
expedition, and at tlie conclusion of the day's or the week's 
chase, divide their game into three equal parts. If boys or 
cripples, or meii of less than ordinary force or skill, are taken 
into the partnership, it is easily determined what portion of a 
full man's share eacli sucli person shal: receive. 

In a liiglily organized community, however, the division of 



THE PARTIES TO DISTRIBUTION. 197 

the product of industry into shares corresponding to the 
number of persons who liave taken jJart in production,* is a 
very complicated problem. 

226. The Division of the Web of Cloth. — For example, 
let us take the case of a cotton factory, at Lawrence, 
which produces in a given time a million yards of cloth. We 
may suppose that this is all woven in one piece, and that 
each person who has, in any way, contributed to the making of 
this giant web, advances in a certain order to receive his share. 

The agent for the water company first appears, and cuts off 
some thousands of yards, inasmuch as his company furnished 
the power that drove the wheels below, that turned the 
spindles above. Then comes the owner of the land on which . 
the mill is built, and carries off, perhaps, a piece five times as 
large; next, the owner of the mill, who takes the largest 
piece of all; next, the man who gave the use of the machinery 
and loaned the working capital, and now measures off so many 
miles of the cloth as his share. 

So far, all has gone smoothly. Though the manufacturer 
has stood by and seen the fearful inroads made upon the web 
by the successive claimants, little has been said, and that, in a 
low tone and in a very business-like way. For some reason, 
he seems to know precisely how much each should take, and 
not even when the agent of the water company carries off 
cloth enough to reach from Boston to Newton, or when the 
owner of the mill staggers off under a roll which would cover the 
State House at one end and Springfield Arsenal at the other, 
does the manufacturer complain. Some reason is known to 
him, w^hy each of these persons should receive so much and no 
less; some calculation which he is able rapidly to make 
maintains a complete understanding between him and them. 

Now, however, the scene changes; there remain but two 
parties as claimants to the six or seven hundred thousand 

*Mr. McLeod, ia his Ecou. Phil., erroneously states that all econo- 
mists, prior to Mr. Mill, used the term, Distribution, as meaning "dis- 
tribution by exchange or sale oul3^" Adam Smith certainly uses the 
term as signifying the division of the product into shares. [See Rogers' 
Edn., II., 357-8, where this use occurs five times in 31 hues.] 



198 POLITICAL ECONOMY. 

yards that are left. On the one side stand a crowd com- 
posed of persons engaged in the mill as overseers, as clerks, 
as mechanics, as laborers, as " operatives," in all, some hun- 
dreds of men, women and children, of varying degrees 
of strength, skill and intelligence ; on the other side, 
stands the manufacturer. All that these do not take, will 
be his; and as piece after piece is rapidly cut off, he seems 
to fear that not enough will remain for him, while eacli 
of them appears disaffected that his own share is not 
larger, deeming it especially a hardship that after he and 
his comrades are served, so much will be left to the manufac- 
turer. According to their several dispositions, some in the 
crowd threaten that it shall not be so again; some merely 
grumble; others take up their little rolls of cloth and walk 
away with a patient, pathetic air, as if they hoped for nothing 
better. 

At last the manufacturer is left with his share. If it has 
been a good season, and all has gone well; if the cotton has 
turned out of good quality, well prepared and baled in 
Mississippi; if the weather has been propitious, with just 
enough of heat and of moisture for the quickest and most 
uniform sj)inning; if there have been no floods in the river, 
giving trouble, and no low water, so that the wheel has 
turned steadily and powerfully whenever the gate was lifted, 
the roll of cloth which the manufacturer will carry back into 
the warehouse will be large, and his face will wear a con- 
tented look. If, on the other hand, any one of a dozen 
untoward accidents, reasonably to be apprehended, has 
occurred, his share will be less, perhaps little, and he may 
wish he had stayed on his fatlier's farm, or gone into tlie 
shoe business, or taken to teaching school. 

227. It is under the present title that we are to enquire why 
it is that each of these claimants on the product of the cotton 
factory takes so much and takes no more. Of course, in the 
immediate instance that reason is found in the force of con- 
tract. All the otlier parties had agreed with the manufacturer 
to allow him the use of their property, or to render him tlieir 
services, at certain rates. But why did they contract at those 



SERVICES AND COMMODITIES. 199 

rates, and not at higlier ; and why will they, as tliey probably 
will, immediately proceed to make new contracts, at the same, 
perhaps at lower, rates ? 

Why, in particular, is it that the division of the product is 
effiected with so little of friction or complaint, so quickly, and 
with so good a mutual understanding, as between the manu- 
facturer and the water company, the owner of the ground, 
the owner of the mill, the owner of the machinery and the 
working capital ; while, between the manufacturer and the 
" hands " there is so much of dissatisfaction and jealousy, of 
complaint and irritation ? 

228. Distinction between the Exchange of Services and 
of Commodities. — Among those writers who have defined 
political economy as the Science of Exchanges, distribution is 
not recognized as a separate department of enquiry, involv- 
ing principles peculiar to itself. These writers find that the 
subjects of exchange are, broadly speaking, two, viz., services 
and commodities, or, labor and the products of past labor. To 
carry forward this distinction is not consistent with the sim- 
plicity of the science which these writers have in contempla- 
tion. The difficulty is soon resolved. By analysis they dis- 
cover that commodities are, after all, nothing but services 
which have taken-on a material form, and thereafter they 
speak only of services ; make value to be the "relation 
of mutual purchase, established between two services by their 
exchange," and thereby secure to political economy "one 
grand characteristic of the great sciences, viz., simplicity." 
This effected, it follows that the distinction between the Dis- 
tribution and the Exchange of wealth falls to the ground. 
There is no longer any need for the former term in political 
economy. 

But I venture to assert that this forced simplicity, secured by 
compelling into a single form things having much that is not 
in common ; this false ^jeace, which disregards irreconcilable 
differences ; this hasty generalization, by which services and 
commodities ai-e made to be one and the same thing, has had 
the effect to render political economy signally barren through 
the very period when social philosophy has been most prolific, 



200 POLITICAL ECONOMY. 

and, secondly, and by consequence, to forfeit nearly all popu- 
lar respect for, and interest in, the so-called science of 
exchanges. 

229. " During the present century," says the Duke of 
Argyle, in his Reign of Law, " two great discoveries have 
been made in the science of government : the one is the 
immense advantage of abolishing restrictions upon trade ; the 
other is the absolute necessity of imj)osing restrictions ujjon 
labor." 

I do not quote this passage, here, for the sake of raising 
the question of Ten-Hour laws or factory inspection, but 
only to call attention to the clear, strong antithesis in which 
this eminent philoso23hical statesman places seiwices and com- 
modities. His statement does not exaggerate the general and 
still growing consent of social philosojDhers and legislators, that 
the rendering of services differs so widely from the exchange 
of commodities that the two must stand in very different 
relations to legislation. More and more fully has this dis- 
tinction come to be recognized. If political economy denies 
the validity of the distinction, so much the worse for politi- 
cal economy in the eyes of social philosoj^hers and statesmen 
alike. Surely, the simplicity of the science may be secured at 
too high a cost ! 

Equally against the pressure of enormous vested interests, 
and against the protests of professional political economists,* 
the legislation of almost every enlightened country has pro- 
gressed by steady steps, through the last sixty, forty, and 
especially during the last twenty years, in the direction of dis- 
criminating vitally between commodities and services, allow- 
ing continually greater and greater freedom of contract in 
respect to the former, and bringing the contracts Avhich 
involve the latter more and more completely under the 
authority and supervision of the State. And yet there is 
complaint that statesmen and the mass of the people entertain 
such slight regard for political economy, whose professors in 

* Of the p(jlitical economy of the 17lh Century, Prof. N. W. Senior 
saj's : " The questions whieh now agitate society as to the distribution of 
wealth were uuresrarded." 



SERVICES VS. COMMODITIES. 201 

the interest of the purity and simplicity of their science, dis- 
card from the premises of their reasoning all the " sympathies, 
apathies, and antipathies" of mankind, and insist upon treat- 
ing a Manchester spinner, with a wife and six children, ignor- 
ant, fearful, and poor, in debt to his landlord and his grocer, 
as possessing the same mobility economically, and under the 
same subjection to the impulses of pecuniary interest, as a 
bale of Manchester cottons on the wharf, free to go to India 
or to Iceland, as the difference of a penny in the price may 
determine ! 

230. An Analogous Case. — But we shall not get a full 
measure of the insufficiency of the reasons given for drop- 
23ing the distinction betM^een commodities and services in 
exchange, unless we ask what would be the consequences to 
political economy of dealing in the same spirit with the anal- 
ogous case of the distinction between labor and caj)ital in pro- 
duction. Suppose the political economist were to say: Caj)i- 
tal is but the result of the labor of the past ; it is, in essence, 
labor which has taken on a material and more or less perma- 
nent form; whatever is true of labor must be true of capital; 
we will, therefore, resolve the two into one, and thus promote 
the simplicity of political economy. Simplicity, indeed, but at 
the cost of the loss of all significance, if not of all sense. What 
sort of a political economy would that be which did not rec- 
ognize the distinction between labor and capital in produc- 
tion ? Yet the distinction has a singularly close analogy to 
that between services and commodities in exchange. Prof. 
Perry complains of M. Carey for having " needlessly con- 
fused the boundaries between capital and labor." It appears 
to me that no less confusion has been wrought, to the inex- 
pressible injury of economical science, by the equally needless 
sacrifice of the distinction we are here considering. 

231. A Contest, though not a Destructive Contest. — It 
will be noted that the distribution of the product of industry 
involves what may be termed a perpetual contest between the 
parties to production. This contest is not a destructive one, 
since the interest of each of the participants requires the 
existence, and, by consequence, the susteutation, of all the 



203 POLITICAL ECONOMY. 

others. Yet, within the limits which are consistent with this, 
there is opposition of interests, since what one gets the other 
cannot have; and there is not unHkely to arise antagonism in 
the methods of action of any two or more parties, seeking 
their separate interests, 

232. The Parties to the Distribution of Wealth.. — This 
contest is, in the last analysis, between individuals. We shall 
see that the real or sujjposed common interests of a number of 
producers may create a supposed class interest which wall 
lead them to act in concert, with a subordination of individual 
preferences to the general good; but, as a rule, the efforts of 
individuals are directed to a personal benefit. Inasmuch, 
however, as it would be impossible to work out the j^roblem 
of distribution with reference to each man, woman, and child 
in existence, or even to each man, woman and child of any con- 
siderable community, we may aggregate individuals, accord- 
ing to what they have in common, into classes, larger or 
smaller, and may seek for the general law which governs the 
efforts of the members of each class towards the acquisition 
of wealth. 

233. Classes in Distribution. — Even if we disregard petty 
distinctions and inconsiderable exceptions, the prime classes 
appearing in distribution will vary in different countries. A 
classification which would fully meet the facts of industrial 
organization in India, would omit distinctions of prime impor- 
tance in England. 

Inasmuch as we could not, in an elementary treatise, give 
the space needed to set forth the problem of distribution in 
each country or group of countries having a common indus- 
trial organization, we will consider for our present purpose the 
industrial organization of England. We take this, because it 
is the most highly developed organization known to industry; 
because it is largely reproduced in the United. States and on 
the continent of Europe, and in Canada and Australia, and is 
everywhere, among progressive peoples, more and more 
widely extending from year to year; and also because it will 
be easier for the reader to work out for himself tlie problem 
of distribution in countries of lower organization, after consid- 



CLA SS£S IN DIS TRIE UTION. 303 

ering how wealth is apportioned among its producers in Eng- 
land, than to go from the simpler to the more complex forms 
of industrial life. 

Under the industrial system which we have taken for the pur- 
poses of the present discussion, we have four classes of claimants 
upon the product of industry, and that product is accordingly 
divided into four grand shares. These classes and the shares 
respectively received by them may be expressed as follows : 

1. The landlord, receiving rent. 

2. The capitalist, receiving interest. 

3. The employer, or entrepreneur, receiving profits. 

4. The employed laborer, receiving wages. 

The reasons for naming these several claimants in the order 
just given, Avill appear as we make progress in the discussion 
of the forces which effect the distribution of wealth. • 



CHAPTER 11. 

RENT. 



234. Definition of Rent.— Rent is the term applied to the 
remuneration received by the land-owning class^for the use of 
the native and indestructible powers of the soil, or, as it might 
Ibe expressed, for the use of natural agents. 

That remulieration may be paid in money or in produce. 
The term land, or natural agents, must be understood to 
include not only arable land, but pasture, timber lands, mineral 
deposits, water privileges and building sites. For the present 
discussion, however, it will be best to take our illustrations from 
the occupancy and cultivation of arable land. It will be easy 
thereafter to apply whatever principles we may deduce to the 
other natural agents specified. 

235. The Origin of Rent Illustrated.— Let us suppose a 
community, isolated from all others, to occupy a circular tract 
of land divided as in the following diagram, into four sectors 



204 POLITICAL ECONOMY. 

equal in extent but so differing in fertility that one piece will, 
with so many clays* labor in the year given to ploughing, cul- 
tivating and harvesting, yield 24 bushels of wheat per acre, 
while the second will yield, with the same amount of labor, 
but 22 bushels, the third but 20 bushels, and the fourth but 18. 



ii-r^- 




Now the assumption we have made as to differing degrees of 
fertility in the soil of the several tracts is not an extravagant 
one. On the contrary, we might reasonably have assumed the 
degrees of fertility to differ far more widely. " A quarter of 
wheat," says Mr. McCulloch, " may be raised in Kent, or Essex, 
or in the Carse of Gowrie, for a fourth or fifth part, perhajis, 
of the expense necessary to raise it on the worst soils under 
cultivation in the least fertile parts of the kingdom." 

In order to further simplify the problem, we will sui^i^ose 
that all the inhabitants of this community reside in a village 
at the centre. 

236. The Ante-Rent Stage of Cultivation.— Let the first case 
taken be when the village is yet so small that all the wheat 
required for the subsistence of the j)opulation can be raised 
upon a portion only of what we will call the 24-bushel tract. 
If that tract be held by a number of competing owners,* each 

* If tlie tract were held by one person, or by several persons acting in 
concert, a monopoly would be established, and a rent might be exacted. 
Wbat would be the limit of that rent ? Two bushels an acre, inasmuch 



THE ANTE.RENT STAGE. 205 

acting for himself, seeking his individual interest, no rent will 
be paid, or only a rent so small that for purposes of economical 
reasoning we may disregard it wholly, on the f)rinciple, which 
applies equally in economics as in law, de miniinis non curatur. 
Each owner of land in this tract will be desirous of securing 
for himself whatever compensation, if any, is to be paid for the 
use of land. But as the entire tract is not required for culti- 
vation, and, as, consequently, only a part of the owners can 
receive any compensation for their land, an active competition 
will set in, each man offering the use of his land for less and 
less, in order to get something, until rent falls to a minimum, 
or disappears altogether. 

237. Relation ofWaste to Rent.— And it is here we see the 
significance of the word, " indestructible," which we used, a 
page or so back, in speaking of the " native and indestructible 
powers of the soil." All scientific reasoning about rent is 
based on the assumption that the tenant will leave the soil in 
as good condition as it was in when he took it; that the owner 
is to receive it back unimpaired as a productive agent. Now, 
it is always possible for a tenant to impair the fertility of land, 
first, by intentional abuse, or, secondly, by taking away its 
productive essences, in the crops of successive years, without 
returning anything to it in the shape of manures or other fer- 
tilizers. 

It is only upon the above assumption that it would be true 
that each owner of land in the twenty-four bushel tract would 
prefer to lease it for a very small rent, approaching nothing, 

as one would do better for himself to take up for cultivation a portion 
of tlie 23-bushel tract, paying no rent, than give more than two bushels 
for the use of an acre of the more productive land. 

But this rent of two bushels per acre, would not be paid for the whole 
of the first tract, but only for the number of acres actually required for 
cultivation in order to furnish subsistence for the community. All the 
owners in the combination would have to divide among themselves the 
aggregate sum so obtained, none obtaining so much as two bushels an 
acre for his individual estate. Should any one owner try to overreach 
the others and secure the full rent for the whole of his own land, the 
" ring " would be broken, competition would set in, and rents would fall 
to the minimum. 



206 POLITICAL ECONOiMY. 

ratlier than not lease it at all. Unless lie could be protected, 
by law or contract, against the exhaustion of the soil by the 
tenant, he might prefer to let his land go unoccupied. But 
on the assumption stated, the proposition is true that, in the 
situation described, no portion of the twenty-four bushel 
tract would bring so large a rent that it might not, for pur- 
poses of economical reasoning, be treated as nil. 

238. Rent Emerges. — Let us now advance to the second 
stage. We will suppose that the population of the village has 
increased to such an extent that the whole of the twenty-four 
bushel tract Avill no longer raise, when cult'vated as it has 
heretofore been, all the wheat required for th subsistence of 
the community. Cultivation will then be driven down to an 
inferior grade of soils. A part of the second tract, the 
twenty-two bushel tract, will be taken up. Do yoii ask, why 
not increase the amount of labor upon the twenty-four bushel 
tract, and so raise more wheat to the acre, until the Avants of 
the community are satisfied ? I answer, because of the great 
fact of Diminishing Returns in Agriculture, which was set 
forth in Part II, with so much particularity. We shall now 
see the whole theory of Rent built upon it. The fact 
itself is undeniable. In every country of the world, and in 
every parish or township of every country, cultivation is seen 
descending to grades of soils below the best, because the 
yield from the highest grades cannot be increased proportion- 
ally to an increase of labor expended thereon. 

Cultivation having, in the case of the community whose 
industrial history we have traced so far, been driven down to 
the twenty-two bushel tract, rent will at once emerge. Not 
that any rent will be paid for any jDortion of the latter tract, 
which will all be in the same condition, as regards compensa- 
tion for its use, as was the first tract when that alone was 
cultivated; but for the twenty-four bushel tract, and for each 
portion of it, rent will now be paid. Why ? Because any 
person desiring to raise wheat may better, may he not ? pay 
something for cultivating a portion of that tract, than culti- 
vate a portion of the new lands for nothing. 

How much will he pay ? Exactly the difference between 



THE LA W OF RENT. 207 

the crops to be grown on the two soils, with the same appli- 
cation of labor, i. e., two bushels, since he can afford to pay 
this rent rather than move to the less productive soil; and as 
some must so move, the landlord will be able to exact the maxi- 
mum rent from the present cultivator: if not, from some other. 

Let us now advance another stage, and sujjpose the increase 
of population to require the cultivation of the twenty-bushel 
tract. The effect of this dowuAvard movement of the limit of 
cultivation will be two-fold : 

First, the twenty-two bushel tract will begin to bear a rent, 
since any cultivator can better afford to jjay a certain rent for 
the privilege than occupy a portion of the new land for 
nothing. The amount of that rent will be determined by the 
difference in productiveness between the two tracts, being, in 
the case supposed, two bushels, an acre. 

Secondly, the tract first cultivated now brings its owner a 
rent (24 — 20 = 4), not of two bushels, but of four. It is no 
better land than it was before; it produces no more wheat 
under the same application of labor and capital; yet it yields 
its owner a rent twice as great as before cultivation descended 
to the third grade of soils; and that increase of rent takes 
place simply and solely because cultivation has so descended. 

And if, again, we suppose that the increasing needs of the 
community require the cultivation of the eighteen-bushel 
tract, even the twenty-bushel tract will begin to bear a rent, 
viz., two bushels, an acre, while the rent of the next tract 
upon the scale of productiveness will rise to four bushels, 
and that of the most productive land to six bushels, or 
three times the original amount. 

239. The Law of Rent. — If we have correctly traced the 
course of self-interest, in dealing with the occupation of land, 
under the necessity of a resort to inferior soils for the sus- 
tcntatiou of the community, we are prepared to state the law 
of rent. 

1. Rent arises out of differences existing in the productive- 
ness of different soils under cultivation at the same time, for 
the purpose of supplying the same market. 

2. The amount of rent is determined by the degree of 



208 POLITICAL ECONOMY. 

those differences. Specifically, the rent of any piece of land 
is determined by the difference between its annual yield an^ 
that of the least productive land actually cultivated for the 
sujjply of the same market, under equal applications of labor 
and capital, it being assumed that the quality of the land as a 
productive agent is, in neither case, impaired or improved by 
such ciiltivation. 

240. Cost of Transportation. — By productiveness through- 
out the foregoing discussion, has been intended net produc- 
tiveness, the cost of transportation to market being first 
deducted. 

In the illustration as thus far given, the cost of transporta- 
tion has been left out of account, the village being so jiiaced 
as to be equally distant from each of the four tracts of wheat 
land, while the whole area under discussion was assumed to be 
so small as not to require the introduction of this element. 
Let us now, however, suppose a tract to be brought under cul- 
tivation for the pin-pose of supplying this market, situated at 
so great a distance as to make the cost of transj^ortation a 
considerable element in the problem of rent. 

If the reader will recur to the diagram, he will see that we 
have marked out a tract, at some distance from our village, 
the path thereto bearing the legend — 2, by which we have 
intended to signify that the cattle and men taking the grain 
to market will eat, going and returning, two bushels out of 
the produce of each acre. The net productiveness of the tract 
will then be, for 1;he purpose of determining its rental, not 23 
bushels, but 21. It will not be cultivated until after the first 
two tracts haA^e been completely occupied. It will then bo 
cultivated, but will bear no rent so long as its produce, com- 
bined with that of those two tracts, suffices for the sustenta- 
tion of tlie community. But when the increasing needs of 
population drive cultivation down to the 20-bushel tract, the 
tract in question will bear a rent of one bushel, which will rise 
to three, when cultivation seeks the 18-bushel tract. 

241. A New Continent.— The reader Avill further note that 
we have connected the same community with the projecting 
edge of a continent, which we have named America, by a 



AMERICAN COMPETITION. 209 

dotted line, to which we have attached the sign and figure — 8. 
These do not represent a portion of the grain brought to market 
eaten by cattle and men, going with loaded and returning 
with empty carts, but represent that portion of the crop of 
the year which is given to railway companies and the owners 
of vessels, as a consideration for transporting the grain to 
the English market. The net produce of these lands is, then, 
for the purpose of ascertaining their rental value, 20 bushels. 
Though they actually yield 28 bushels to the acre, with the 
given application of labor, they will bear no rent till the 18- 
bushel tract of English land is brought under cultivation, 
when they will yield two bushels rent, an acre, the same as 
the 20-bushel English tract, the net productiveness being the 
same. But supj)Ose this American land is of vast extent, and 
upon it can be raised all the grain which this, or any, market 
requires, what will be the effect upon rents? Why this: no 
one will now cultivate the English 18-bushel tract. Why 
should one, since a greater net produce can be obtained by the 
same labor elsewhere ? This lowest grade of soils, therefore, 
falls immediately out of cultivation. With what effect upon 
the rent of other parcels of land ? To answer this, let us recur 
to our formula. The rent of any piece of land is determined 
by the difference between its annual yield and that of the least 
productive land under cultivation for the purpose of supplying 
the same market. The 24-bushel English tract has been 
bringing its owner 6 bushels, an acre, rent, because, and only 
because, the 18-bushel tract was necessarily brought under 
cultivation to subsist the community. Now, however, that 
American land, with a net productiveness of 20 bushels, an 
acre (28—8=20) is found in unlimited amount, the margin of 
cultivation is jiushed backwards, and the best of the English 
tracts brings but four bushels rent; the next best but two; 
the 20-bushel tract now bears no rent, as it is in competition 
with free American land of indefinite extent. 

Again, assume that the introduction of Bessemer steel rails 

and various improvements in ocean navigation rediice the cost 

of transportation of American grain to seven bushels out of 

every 28, what will be the effect on English rents ? Clearly 

14 



210 POLITICAL ECONOMY. 

the American land now lias a net productiveness represented by 
21 bushels, and, as it is of unlimited extent, all the English 20- 
bushel land is tlu'own out of cultivation — for who would wish 
to cultivate it? and the rent of the best English land is 
reduced to three bushels, and that of the second grade 
to one. 

The foregoing illustration accounts sufficiently for the great 
economical, and, by consequence, great social, change which has 
been going on in the British Islands within the last few years. 
The reduction in the cost of transportation from the American 
wheat fields beyond the Mississii^pi to the seaboard, and from 
the seaboard to Liverpool, has increased the net productiveness 
of those fields to a degree equal to the addition of several 
bushels an acre to the crop. This has thrown out of cultiva- 
tion much of the poorer English land, and, by lifting upward 
the limit of cultivation, has decreased the normal rent of all 
English lands, cutting deeply, in prospect, into the incomes of 
the land-owning class. The first effects, however, have been 
most severely felt by the cultivators of the soil, who, holding 
their farms by lease, find themselves still bound to pay the 
stipulated rents, which were calculated, years ago, with refer- 
ence to a less stringent foreign competition. 

242. Relation of Rent to the Price of Land.— We have 
stated the economical doctrine of rent. The price of land and 
its rental value stand in a certain necessary relation to each 
other. Land has its price because, and only because, it can 
command a rent. But while the relation between the two is 
a necessary one, being no less direct than that of cause and 
effect, the ratio between the rent of land and the price of land, 
expressed in terms of produce or of money, varies widely. In 
some countries, where the amount of accumulated capital is 
large ; where a high degree of civil security exists ; where 
the rights of property are respected, and whei'e the OAvnership 
of land carries with it social distinction and perhaps j^olitical 
influence, the price of land may be twenty, twenty -five or even 
thirty times the aimual rental. In other countries from the 
failure of one or all of the conditions indicated, land may not 
sell for more than fifteen, ten, or even five times its rental. In 



RENT NOT A PART OF THE PRICE OF CORN. 211 

the Southern States of our Union, there are, even so many- 
years as this after the civil war, vast breadths of good cotton 
lands for which a handsome rent, in kind, can be obtained by 
the owners, but which, if put up at auction, will not, on account 
of the scarcity of capital, and perhaps from other causes, com- 
mand seven years' rental. 

243. Rent forms no part of the Price of Agricultural Pro- 
duce.— From the law of rent, as it has been stated, we deduce 
the very important proposition that rent forms no part of the 
price of agricultural produce. 

No proposition which the political economist has occasion 
to announce is so startling, at the first hearing, as this ; nor 
does any other have to contend against such persistent incred- 
ulity. When, for instance, we learn that two hundred millions 
of dollars are yearly paid as the rent of cultivated, lands in 
England, it seems incredible that this vast exaction should 
have no effect upon the price of wheat in any English market ; 
that the remission of this gigantic sum, by the landlord to 
the tenant, would not add a pinch of flour to the sixpenny loaf. 
And, yet, no proposition can be more clearly established. We 
have seen that in the same market, at the same time, there is but 
one price for different equal portions of any commodity ; and 
we have also seen that normal price is fixed by the cost of 
producing that portion of the supply which is produced at the 
greatest disadvantage. 

Apply these principles to the case in hand. England does not 
raise all the wheat needed for the subsistence of her population. 
Besides cultivating the most fertile of her own fields, she 
makes heavy draughts upon the United States, France, Egypt, 
Hungary, and the Black Sea regions. For the wheat of all 
these countries, however, so far as it is of the same quality, 
there is but one price. That price is fixed by the cost of raising 
the million, say, of bushels which are raised at the greatest 
disadvantage, which means, in this case, at the greatest dis- 
tance, viz., on the plains of Dakota. This wheat the English 
must have : the proof of which is found in the fact that they 
do have it. Now, if they will have it, they must pay the 
cost of raising it, that is, must pay enough to induce men to 



212 POLITICAL ECONOMY. 

go to that far off country, undergo the privations of a frontier 
life, undertake all the risks of pioneer agriculture, and submit 
to enormous charges for the transportation of their product by 
land two thousand miles to the seaboard, and, then, three thou- 
sand miles, by sea, till it is laid down in Liverpool. If the 
English Avill not pay this price, they cannot have the wheat. 
That they get the wheat is proof enough that they pay this 
price, which, in turn, sets the price for all the wheat raised in 
England, and for all the wheat brought thither, whether from 
France, from Egyjrt or from the Black Sea, altogether irre- 
spective of the cost of raising it in any other locality than 
that where it is produced at the greatest disadvantage. Wheat 
may be raised on the fertile farms of Middlesex at an actual 
cost not exceeding two shillings a bushel ; but the Middlesex 
farmer will not, on that account, sell his wheat below the mar- 
ket jDrice, say, six shillings, which price is fixed, as we have 
seen, by the Avheat from America. The difference, four 
shillings, is to be profit for some body ; and we will now pro- 
ceed to show that this body must be either the landlord, or 
the tenant, not the agricultural laborer, and not the consumer 
of flour. 

244. What Would Happen if Rents Were Remitted ?— 
Perhaps we shall best make this appear by means of an illus- 
tration. Let us suppose that a philanthrojjic gentleman, 
whose rent roll is £20,000, being greatly moved by tales of 
distress, knowing that the quartern loaf is very dear, and 
believing this to be due to the large rents jiaid for the use of 
land, calls his tenants together, and tells them that, in consid- 
eration of the hard times and the great suffering of the poor, 
he has determined to remit one-half of the rent of all his 
farms, so that the farmers may be enabled to sell wheat at a 
lower price, and thus the poor be enabled to buy bread at a 
cheaper rate. What would be the consequence? Doubtless 
all the tenants would accept the proffered terms cheerfully, 
and humbly thank his honor. But would they sell the wheat 
at any lower price ? Not at all ; why should the}^ ? The}'- 
can get the market price for it, ami tliat price is not fixed by 
the cost of raising wheat on their farms, or on any farms for 



RENT NOT A PART OF THE PRICE OF CORN. 218 

which rent is paid. It is the no-rent* land that raises that 
last portion of the necessary supply of wheat which fixes the 
price of all wheat. 

But sui^pose, to imagine a most improbable case, that some 
one out of the fifty tenants on this estate were to go to the 
dealer in grain to whom he was accustomed to sell his crop, 
and say : "Mr. B., inasmuch as my landlord has remitted half 
my rent, this year, I offer you my wheat a shilling less a 
bushel, in order that you may sell it at a corresponding reduction 
to the baker." What would the grain dealer do ? Clearly 
he would take the wheat, at the reduced price offered; but 
would he sell it to the baker for any less ? And if two such 
fools wei*e found in succession, would the baker, getting his 
flour a shilling "off," put down the price of the loaf? Not if 
he were of the sort of baker that you and I know. 

But perhaps it is said, we concede that the farmers will 
not sell their wheat at any lower price, on account of the 
remission of rent, because this would clearly not reduce the 
price of wheat to the consumer; but they surely will raise 
the wages of their laborers correspondingly. Why should 
they ? They can make presents to their laborers, just as they 
could make presents to grain dealers or bakers, but we are 
talking now about business, and, as a matter of business, why 
should these fifty j)ersons raise the wages of their laborers, in 
consequence of the generosity of their own landlord ? The 
laborers were willing to work for them, before, for the wages 
that were stipulated, the same wages, it may be assumed, 
which other laborers in the county were receiving. Why 
should the laborers now be unwilling to work for them at the 
same wages ? And if the laborers are willing to work at the 
same wages, why should the farmers pay more ? 

* The United States gives any settler in Minnesota, or Dakota, or 
Nebraska, or on any of the public lands, who will declare an intention 
to become a citizen, a farm of 160 acres, exacting only a registration fee 
of $26. The annual interest ou $36, at G per cent., is $1.56, so that the 
settler gets the land on an annual payment of a cent an acre. A rent of 
a cent an acre may be called uo-reut, and these are the lands we have 
called no-rent lands. 



214 POLITICAL ECONOMY. 

245, These illustrations may seem very elementary, but I 
have known so many persons, after a complete demonstration 
of the proposition we are considering, go away, showing, by 
look or by remark, that they still clung to the notion that 
rent has, somehow, something to do with the price of agricul- 
tural produce, that I have thought it worth the space 
required to repeat the demonstration and fully illustrate the 
argument, in order to overcome this disposition to incredulity 
which is utterly irrespective of reason. I trust it has been 
shown, to the conviction of every reader, that rent is a 
matter between the landowner and the tenant, not between the 
landloi'd and the agricultural laborer, or betAveen the land- 
lord and the consumer of agricultural produce. Rent is the 
surplus of the crop above the cost of cultivation on the least 
productive lands contributing to the supj^ly of the market. 
Admitting the private ownership of land, that surplus, neces- 
sarily, so far as economic forces are concerned, is left in the 
hands of the landlord. There, so far as economic forces are 
concerned, it must remain. The landlord can give it away, if 
he pleases, just as he can give away his horse, or his house, 
or anything that is his. He can give it to his tenant, just as 
he could give to any one else. But if he does, it becomes a 
pure gratuity to the tenant, who, under the operation of the 
l^rincijile of self-interest, will transmit it neither to the agri- 
cultural laborer nor to the consumer of food, but will retain it 
entire for his own enrichment. 

246. Attacks on the Doctrine of Rent. — Such is the eco- 
nomic doctrine of wealth, whicli is generally known by the 
name of David Ricardo, though, in truth, it was announced 
by Anderson, a Scotch economist, who wrote at an earlier 
date.* 

* It is DOt, however, wholly inappropriate (o joiu the name of Ricardo to 
this doctrine, on account of the great force and clearness with which he 
expounded and defended it. Anderson's statement of the same princi- 
ple, though perfectly correct, was so made as to attract no attention, and 
it was not till long after Ricardo made the doctrine famous, that it 
became popularly kuowu that the substance of it was contained iu 
Anderson's work. 



ATTACKS ON RICARDO'S DOCTRINE. 215 

A great deal of perverted ingenuity has been displayed in 
attempts to i-efute this doctrine. All so-called refutations of 
the law of rent begin with a misstatement of it. Upon the 
assumptions which underlie it, the doctrine is irrefutable. 
The man who disputes it, places himself on the level of the 
man who denies that things which are equal to the same thing 
are equal to each other. 

The late Mr. Carey, of Philadelphia, expended infinite 
labor and learning in disproving Mr. Ricardo's assumption 
that cultivation has, in the course of the settlement of new 
countries gone down from better to poorer soils. Mr. Carey 
sought to show, may perhaps be said to have shown, that, in the 
settlement of a country, the thin, warm, sandy soils are gener- 
ally first taken up, because a crop can be easily and quickly 
raised upon them, or because such soils are more frequently 
found near rivers, the natural lines of communication with 
the older settlements; and that it is only after an interval 
that the deeper, richer, stronger soils are opened, often times 
at a considerable initial expenditure of capital, which new- 
comers could not afford. 

Grant that it is so: the economic doctrine of rent is not 
affected thereby. The historical sequence is not in any degree 
vital to the doctrine. Admit that in the settlement of a new 
state, only light, dry, sandy soils are cultivated; still, there 
will be differences of productiveness between these, and if 
one, with a given application of labor, Avill yield 13 bushels, 
another 15, another 17, another 19, rent will emerge, in all 
respects as in the instances heretofore given. 

Mr. Carey has not only not destroyed the economic doc- 
trine of rent, he has not even touched it. While Ricardo 
assumed, for purposes of illustration, the order of settlement 
referred to, his " law " relates to soils under cultivation at 
the same time, and to these only; and Mr. Carey has adduced 
nothing, absolutely nothing, to break the force of Ricar- 
do's exposition of the operation of the principle of self- 
interest in dealing with the soils under cultivation at any 
given time, whether warm, thin and sandy soils only, or deep 
and strong soils only, or of both kinds simultaneously. 



216 POLITICAL ECONOMY. 

247. The Doctrine of Rent: How far Applicable to Actual 
Conditions ?— We have said that the law of rent is true 
hypothetically, that is, upon the conditions assumed, viz., that 
the owners and the occupiers of land, each for himself, fully 
understand their own pecuniary interests, and will unflinch- 
ingly and unfailingly seek and find their best market. 

How much does this mean? A great deal; more than ever 
was realized in any country of the world, at any time, though 
it has been far more nearly aj)proached in some than in 
others. Just what is implied in the above assumption ? 

First, on the landlord's part, that he would as soon take a 
new tenant as retain one whose family had been on the soil 
for centuries; that he will entertain no other consideration 
than the realization of the largest j)ossible rent; and that he 
knows all the facts which in any way bear upon the highest 
rate which could be charged for the use of the land without 
driving away all would-be tenants. 

Secondly, on the tenant's part, that he would as soon move 
to another farm, to another county, or to another country, as 
stay where he is, should the least jjecuniary advantage be 
offered by a change; that he has, at all times, the means 
to remove himself and his family and to place himself else- 
where; that, were he to remove, he could carry with him the 
value of his stock and fixtures, and of any improvements he 
might have made during his tenancy; that he thoroughly 
knows and can intelligently canvass within himself all the 
varying advantages of a suflicicnt number of localities, 
whether in Europe, America, or Australia, to make his choice 
practically indefinite; and that neither fear nor dread of 
change, nor love of homo, friends or country, will intervene 
to keep him from his best market: that is, where he can rent 
land, of a given degree of i^roductiveness, at the lowest annual 
rate. In a word, the doctrine we are considering assumes 
that rents are determined solely by competition, and that com- 
petition is perfect within this sphere. 

The briefest recital of the foregoing conditions shows 
clearly that the law of rent as laid down cannot furnish a 
formula by which thf rent of a single piece of land on the 



RENTS IN AMERICA. 217 

globe can be determined in advance. The law is true only 
hypothetically, and the conditions assumed exist nowhere. 

Yet this theoretical doctrme of rent is by no means to be 
regarded as vain and illusory.* In some countries, as notably 
in the United States and in England, it furnishes the great 
underlying principle according to which, with more or less of 
divergence from general or from local and individual causes, 
the actual rents paid are primarily determined. In other 
countries, like those of continental Europe generally, where 
not competition, but custom, is the main force operating on 
the rental of land, the doctrine of rent is still of importance; 
first, as clearly furnishing the legitimate outside limits of 
rent; secondly, as establishing the proposition that, up to 
those limits, the rents paid, be they larger or smaller, do not 
form a part of the cost of agricultural produce; and that the 
question of rent or no rent, of high rent or low rent, is purely 
a question between landlord and tenant, not between the 
employer and the employed, and not between the producer 
and the consumer of food. 

248. Hants in the United States. — W^e have said that in 
some countries the economical doctrine of rent furnishes the 
principle Avhich primarily determines actual rents. The 
United States offer the most striking illustration of this. So 
completely is the American mind imbued with the feeling 
that a thing is worth what it will bring; so little sympathy is 
here found for the notion of classes which, by reason of weak- 
ness, must be hedged in from contact and competition with 
outside forces; so vast are the tracts of arable land not yet 
occupied; so freely do our people move from place to place; so 
slight are their attachments to locality, that no prejudice what- 
ever would be created by a landlord's demanding the utmost 
rent which the tenant could, and in the result, would, pay. 
The fact that the tenant actually paid the rent demanded would 
be proof sufficient that he ought to pay it, that the land was 
worth it, and that the landlord showed only a proper sense of 

*Mucli of the live or six pages following, appeared in an article by the 
author, in the International lieview, of Januar}^, 1882, entitled "The 
Law of Rent in its Application to the Irish Land Question." 



218 POLITICAL ECONOMY. 

his own interest in advancing the price. Nay, should the 
tenant refuse to pay the increased rent and give way to 
another, I know not an American community where the 
slightest odium would attach to the landlord. It would be 
felt, it would be freely said: If the tenant is not willing to 
pay the price of the land, let some one take it who is. And 
what is true of the United States in this particular is true 
probably in neany equal degree of Canada and Australia, new 
coiintries exhibiting the same general condition of social life. 

Here we see the unrestrained operation of the principle of 
competition, with a wholly beneficial result. The tenant and 
landlord, being substantially on an equality as to intelligence, 
enterprise, and freedom of movement, seek each his own inter- 
est, yet without injury to the other. As the pressure of the 
atmosphere, although it amounts to 15 pounds upon every 
square inch of surface, is yet unfelt by us, and in nothing 
interferes with our activity or our pleasure, because it is 
everywhere equal, above and below, inside and out, on the 
right hand and on the left, so the pressure of competition is 
wholly salutary in its influence upon the distribution of 
wealth, where all parties are equally active, alert and mobile 
in the pursuit of their individual interests. 

249. English Rents. — When, however, we reach the shores 
of England, we find a new force entering actively to influence 
rents, all on the side of the tenant's interest. Here the sen- 
timent is universal that there are classes which, by reason 
of wealth, education, and social position, are bound to do 
much, on the one hand, and to forbear much, on the 
other, out of regard to the interests of classes which are 
deemed to be, by reason of poverty and ignorance, perma- 
nently and hopelessly weak and, in a greater or less degree, 
dependent. 

Tlie gentleman must never forget, in dealing with his ser- 
vants, his laborers, his tenants, and even in some degree his 
trades' people, that he is dealing with inferiors and depend- 
ents, who are, in a sense, under his protection, who cannot 
easily defend themselves against encroachment or fully assert 
their own interests, and that, in consequence, he is bound to 



RENTS IN ENGLAND. 219 

act somewhat differently, it may be very differently, from 
what he would were he dealing with his equals. 

But it is in regard to land that this sentiment ojjerates 
Avith the greatest force. It would be morally impossible for 
an English landed proprietor to feel that freedom in regard to 
raising rents which characterizes the action of an American 
landowner, A gentleman there who should undertake to 
force up rents to a maximum, acting on the j)rinciple that if 
his present tenants could not or would not pay his price he 
would find others to do it, would be " cut " socially in any 
county of England. Were he, for the purpose of raising 
rents, to drive away tenants whose families had been on the 
soil for centuries, he would feel the lash of public indignation 
descend on his back till life was made a burden to him. 
Instead of gaining increase of style and state through an 
enlargement of his rent-roll thus obtained, his social standing 
would be destroyed. 

With a condition of public sentiment thus acting strongly 
and steadily in restraint of the natural impulse of the land- 
holding class to advance rents, we should look to see a diver- 
gence of actual from theoretical rents, all on the side of the 
tenant's interest; and such, indeed, we find to be the case. 
" The rent of agricultural land," says Prof. Thorold Rogers, 
"is seldom the maximum annual value of the occupancy; in 
many cases is considerably below such an amount." 

250. Customary Eents on the Continent of Europe.— On 
the Continent of Europe, rents are, in general, not determined 
by competition, but by custom, to which Mr. Mill has 
assigned the same beneficent function in economics it has 
always performed in the sphere of politics, as " the most 
powerful protector of the weak against the strong." In 
Switzerland, France and Italy, rents were formerly fixed 
almost universally by the custom of the country, at a certain 
definite portion of the produce of the land. This species of 
tenure, known as the metayer tenancy, has been fully recog- 
nized by economical writers as giving to the peasantry the 
use of land at less than the maximum rents as determined by 
the application of the j^urely economic formula. So strong 



220 POLITICAL ECONOMY. 

is the force of custom in protecting the tenant's interest, in 
these countries, that oftentimes it happens that, even where 
cities have sj)rung up during the continuance of a family 
upon the soil, giving a local market for produce, and, by con- 
sequence, raising prices, the landlord, even in admitting a 
new family to the estate, does not attempt to exact a larger 
share of the produce. 

"A proprietor," says Sismondi, writing of Tuscany, 
" would not dare to impose conditions unusual in the country, 
and, even in changing one metayer for another, he alters 
nothing of the terms of the engagement." 

251. Rents in Ireland, — Having seen how far actual may be 
made to diverge from theoretical rents, all on the side of the 
tenant's interest, by the force of a public sentiment restrain- 
ing the greed of the landlord class and protecting a class 
deemed necessarily helpless and dependent against exaction 
and against eviction, let us now tui'n to a country where, in 
the time of which we are to speak, the population Avas not 
homogeneous ; where prejudices of race and religion had 
engendered animosities which descended from generation to 
generation; where no friendly public opinion stood guard over 
the interests of a peasantry whose own improvidence and 
recklessness concurred with the unrestrained greed of the 
landlord class in inciting a fierce and unremitting competi- 
tion for the occupancy of the soil. 

The story of the wrongs done to Ireland from the reign of 
the Tudors down to that of George III. is so familiar that it 
is needless to enter into details to show why it Avas that in 
Ireland nothing intervened between landlord and tenant to 
break the force of competition. It was not merely that the 
two classes were of different races, of different religions, and 
in some degree also of different speech. The confiscations 
and colonizations of Elizabeth, the wars of Cromwell, and 
lastly the Penal Code, of which the temperate Hallam says, 
" to have exterminated the Catholics by the sword, or expelled 
them, like the Moriscoes of Spain, would have been little 
more repugnant to justice and humanity, but incomparably 
more politic "—these were the prime causes which had engen- 



RENTS IN IRELAND. 221 

dered antagonisms and animosities such as have rarely, in 
modern times, divided the population of any land. 

In addition hereto another and most potent cause contribu- 
ted to the severity with which rents were exacted. This was 
absenteeism, a great part of the soil being owned by landlords 
who resided in England or on the Continent, and transacted 
their business in Ireland through local agents, or through 
"middlemen," who assumed the estimated rental of large 
estates and wrung from the peasantry whatever they could. 

By a kind of natural selection, out of these agents and mid- 
dlemen came to be developed a distinct species of social animal, 
peculiarly fierce and cunning, of preternatural acuteness to 
search out every possible occasion for fresh exactions, and with 
heart of flint and face of brass. Only men with a natural apti- 
tude for exaction, distraint and eviction were selected for such 
a work; years of practice made them perfect in the arts of extor- 
tion, while the consciousness of being despised and hated with 
a frenzy which turned an open-hearted, generous peasantry 
into assassins and midnight fire-raisers, choked every casual 
thought of pity, and made absolute heartlessness both a pro- 
fessional virtue and a condition of self-preservation. Mean- 
while, the landlord, expending his rents in distant cities, it ■ 
might be in noble state and splendor, it might be in riot and 
debauchery, heard nothing of the piteous appeals for forbear- 
ance or remission of rent, saw nothing of the misery of dis- 
traint and eviction, had nothing to apprehend from the frenzied 
rage of the ruined and homeless peasant. 

Such was the situation in Ireland, on the part of the land- 
lord class, furnishing all the conditions necessary to a rigid and 
relentless enforcement of rent, up to the economical maximum 
— i. e. to the extent of giving to tlae owner of the land the 
entire surplus produce above the cost of cultivation on the 
poorest soils. 

How was it on the side of the peasantry ? Were they pre- 
pared to supply the conditions which should prevent competi- 
tion from becoming disastrous, destructive ? Unfortunately, 
the peasantry of no country in Europe were less fitted to enter 
upon such a struggle with the landlord class. Generous, sau- 



233 POLITICAL ECONOMY. 

guine, improvident even to recklessness, the Irish people 
clung the more closely to the land the more miserable their lot; 
multiplied at a rate altogether inconsistent with the capacity of 
the soil for providing subsistence, and competed among them- 
selves for the occupancy of smaller and continually smaller 
parcels with a passionate eagerness. Had it been a stationary 
population, like that of France to-day, which entered on this 
struggle for the fruits of the soil, the peasantry might have 
had some chance; but, vnth a population at least fifty per cent, 
beyond the capabilities of the soil to support, as the art of agri- 
culture was then practiced, while every year largely increased 
the number of eager, penniless competitors, misery could 
hardly fail to result. 

In the situation described, with the aggressive tendencies 
of the landlord class stimulated to the highest degree, and 
uncontrolled by the kindly sentiments or the conservative 
usages which in every other country in Europe during this 
period operated for the protection of the tenant's interest, 
and, on the other side, with the power of self-assertion in the 
Irish peasantry reduced almost to a minimum, it was a mat- 
ter of course that rents were advanced to the full limit 
allowed by the economical law we have stated. But there 
was more than this and worse than this. Rents were 
demanded by the agent, or middleman, rents were even 
offered by the peasantry in the eagerness of their competi- 
tion, far in excess of the economical maximum; in excess of 
what could possibly be paid; in many cases in excess, incredi- 
ble as it may seem, of the whole annual jjroduco of the soil.* 

But, it may be asked, if the tenants could not j^ay the rents, 
what harm to promise them ? The landlords clearly would be 
disappointed; but how would the tenants suffer ? 

The injury done to the peasantry through this cause was 
threefold. 

*Cottier rents are nominal in pecuniary amount, because these rents 
are fixed so high tiiat it is impossible for the cottiers ever to pay them. 
The nominal amount of the rent far exceeds the whole produce which 
the land would yield. — H. Fawcett, Pol. Economy. This statement is 
probaljly somewhat too sweeping. 



JiENTS IN IRELAND. 223 

First — The whole possible produce above the bare necessi- 
ties of subsistence, belonging to the landlord, the tenant had 
little interest in the crop or in keeping up the productiveness 
of the land. Having nothing to hope for, and being in so 
bad a plight that there was nothing but eviction left to fear, 
all energy, all inspiration died out of the cultivation of the 
soil. What was done was always the least and the meanest 
that could be done. 

Secondly — The promise of excessive, and indeed nnpossi- 
ble, rents kept the tenant always in debt to his landlord. 
Hopeless debt differs little from slavery; the Irish cottier 
lived by the breath of the agent or the middleman, who had 
it always in his power to drive him and his family from their 
home into a condition of inexpressible misery. 

Thirdly — The joint effect of the causes described was con- 
tinually to lower the standard of living, and consequently the 
cost of cultivating the no-rent land, or lowest grade of soils, 
by making the peasantry reckless regarding the increase of 
their numhers. 

It is the doctrine of the economists of the a priori school 
that the more miserable the lot of the laborer in any given 
place or any given avocation, the more readily will he move 
to another place or take up another occupation, and the more 
will he withhold his increase, so that the evils of nis condi- 
tion will, in due time, be corrected. The human fact, so 
often to be distinguished from the economical theory, is that, 
as his lot becomes more miserable, the laborer is the less able, 
if not the less disposed, to change the scene or the nature of 
his work, and that it is the very poor and destitute who, in 
sheer recklessness, bring forth children most abundantly. So 
it proved in Ireland, under the conditions recited. As the lot 
of the peasant, under the pressure of population and the ever- 
increasing exactions of the landlord, grew more and more 
pinched and painful, the faster did population increase, and 
the more stationary it became. Downward, continually 
downward, moved the standard of living, till the peasantry of 
Ireland came to be fed, unlike the prodigal of Scripture,, upon 
food which would not even nourish swine. 



224 POLITICAL ECONOMY. 

252. Effects of Unequal Competition.— In the foregoing 
description of the state of the Irish tenantry prior to 1844, we 
have an ilhistration of the results of an unequal competition. 
That same force which in the United States, operating upon 
an intelligent, alert, active, aggressive pojDulation, under equal 
laws and with a spirit pervading the whole society which pro- 
moted the utmost freedom of movement and of contract, pro- 
duces effects only beneficial, in Ireland, under the melancholy 
conditions recited, produced only disaster, just as the pres- 
sure of the atmosphere when it becomes unequal, as, for 
instance, through the exhaustion of the air within a vessel, 
becomes a crushing and destructive agency. 

253. Actual vs. Theoretical Rents. — We see, then, that 
practically there may be three classes of cases in respect to 
rent. 

First — Where, under the influence of an active competition 
for the product of industry, with all the claimants substan- 
tially on an equality m respect to intelligence, alertness and 
freedom of movement, and^ with no laws or habits or senti- 
ments opposing the complete exaction of all which anything 
that is the subject of bargain and sale may be worth, rents, as 
in the United States, conform nearly to the Ricardian for- 
mula. 

Second — Where, among a population presenting wide differ- 
ences of wealth and intelligence, and perhaps, also, of rank 
and political power, sentiments of personal kindliness and 
mutual regard between landlord and tenant, and a strong, 
authoritative opinion throughout the community respecting 
the obligations imposed by the ownership of property, especi- 
ally of landed property, serve, as in England, and in many 
countries of the continent of Europe, to reduce, in greater or 
less degree, the pressure of the landowning upon the tenant 
class; making the landlord slow to seek occasions for raising 
rent to its full economical maximum; reluctant in forcing 
matters with the tenant to extremity, and altogether unwil- 
ling, whether from his own individual interests, or out of 
respect to public opinion, to proceed, in any event, in the case 
of a decent, well-meaning tenant, to distraint and eviction; 



ACTUAL VS. THEORETICAL RENTS. 225 

by which it comes about that rents vary widely from the 
Ricardian formula, always on the side of the tenantry. 

Third — Where, with a tenantry ignorant degraded by long 
neglect or long abuse, improvident, perhaps reckless in respect 
to family increase, and by consequence unable to offer eifec- 
tive resistance to an acquisitive, aggressive treatment of the 
question of rents, little in the way of sentiments of personal 
kindness on the part of landlords, and nothing in the way of 
an authoritative public opinion in favor of moderation in 
exercising the rights of property, enters to restrain the 
impulses which tend to advance rents up to the theoretical 
maximum, or even, as Ave have seen in the case of Ireland, 
above that point, with a result of ultimate injury to the eco- 
nomic interests of. both parties and of the entire community. 

254. The Kent of Water Privileges.— We have thus far 
spoken only of the rent of arable land. We have taken this 
first, not only because it is most important, so far as the mere 
amount involved is concerned, but also because the principles 
governing rent can be here most easily discerned. If we 
have thus far done our work well, there will now be little 
difficulty in applying the principles we have discovered to the 
rent of water privileges and building lots. 

Water privileges have three uses: first, for power, in con- 
nection with saw-mills, grist-mills, cotton factories, &c.; sec- 
ondly, for the supply of Avater, for drinking, washing, and 
other domestic purposes, to cities and towns; thirdly, for the 
irrigation of land, for the purposes of agriculture. The vol- 
ume of Avater, the convenience of its application to the pur- 
pose for Avhich AA'ater is, in the specific instance, required; 
proximity to the market, that is, the j^lace where the Avater 
is to be used, these are the principal considerations Avhich 
determine the j^roductiA^eness of a Avater-privilege for the pur- 
jjoses of rent. For the supply of cities and tOAvns, the 
quality of the AA'ater also becomes an element of importance. 

Productiveness being thus estimated, there are all degrees 
of productiveness among water privileges. There are the no- 
rent privileges, which, bj' reason of distance, or inconvenience 
of application, or of insufficient or irregular flow, are not used 
15 



226 POLITICAL ECONOMY. 

at all, or are only used on condition that no compensation is 
exacted therefor. Above these, are found low-rent privileges 
and high-rent privileges, the measure of rent being the 
degree of productiveness, exactly as in the case of arable 
land. 

255. Building Lots.— The rent of building lots is deter- 
mined, mutatis nmtandis, by the principles we have already 
set forth. There are no-rent building lots in abundance. 
Every township in the land has its squatters whose cabins, 
placed out of the way, on worthless land, pay no rent. Even 
in the immediate neighborhood of large cities, like New 
York, shanties are perched on the rocks without objection 
from owners of land which, in another twenty or fifty years, 
may bear a high rent. So far as room for building is con- 
cerned, one might lease land enough in Arizona or Nevada, 
for a hundred dollars a year, to hold all the houses, barns, fac- 
tories and stores of the United States. But something more 
is wanted in the case of a building,' than merely ground to 
stand upon; the building must be placed with reference to its 
uses; and it is the productiveness of the lot in that respect 
which determines its rent. Among building lots that bear a 
rent, the minimum rent may be said to be determined by the 
value of land for the purposes of agriculture. A man leases 
a hundred acres of arable land, of uniform quality for $500, a 
year, and places his house upon some convenient spot, occupy- 
ing, with barns and sheds, a quarter of an acre of ground. The 
rent of this building lot is 11.25 a year. If he Avere a 
market gardener, near a large city, the rent of the lot so occu- 
jDied might be $10. If, on the other hand, he Avere a market 
man instead of a market gardener, he might pay $50 for the 
rent of the ground on which to build his cottage in the 
suburbs of the city, and five times that sum as the ground rent 
of his little sho]) in the heart of the city. If a banker, he 
could better afford to pay $1,000 or perhaps $5,000 ground 
rent on State street, or Wall street, or Lombai'd street, than 
occupy i^remises half a mile away for nothing. 

The productiveness of land occupied for the purposes of 
manufacture or trade, has reference to the amount of busi- 



RENT OF MINES. 527 

ness which the locality affords an opportunity to secure, or to 
the proximity of water-privileges, or of wharf -privileges, or to 
other facilities for either doing a greater amount of business 
with the same capital, or for saving expenditure upon a given 
amount of business. Such lots being limited in number, yet 
held by competing owners, their rent conforms closely to the 
Ricardian formula, under this varying construction of the 
word, productiveness. In regard to the rent of such building 
lots, competition is, if not perfect, at least very active on 
both sides. No favor is shown or asked; the two parties to 
the bargain are regarded as equal. The landlord gets all the 
land will bring, if not from one tenant, then from another. 
The tenant expects to pay all that any man will be willing to 
give for the commercial advantages of occupying the 
ground. 

256. The Kent of Mines.— The rent of mines is not gov- 
erned wholly by the economic law of rent which, as stated 
(par. 237) has reference to the native and ^n(/e5^rMc^?^■5/e powers 
of the soil. Under proper care and husbandry, cultivation 
does not exhaust the soil. With rotation of crops, with 
annual manuring and an occasional season of rest, such as are 
provided for in most English leases, the land returns to its 
owner, or his representative, after 30, or 50, or 100 years, with 
unimpaired virtue. The enjoyment of water privileges does 
not exhaust the capacity of the river, which flows on forever. 
The occupation of the ground by a building for a generation 
does not contract the surface available for the same or a dif- 
ferent use by another generation. But, by the very nature of 
such deposits, the enjoyment of mining privileges diminishes 
the sum of the mineral in existence. The mine may be 
" worked-out " in ten years or in twenty or in fifty, and 
nothing but an ugly pit be returned to the owner, at the 
expiry of the lease. The rent of such properties is not, 
therefore, regulated by the Ricardian formula, without modi- 
fication. The rent must be increased sufficiently to compensate 
for the ultimate exhaustion of the deposits: the destruction of 
the value of the estate. Otherwise, the rule of rent for these 
properties is the same as in the case of other natural agents, 



338 POLITICAL ECONOMY. 

The chief elements, here, in determining productiveness, for 
the purposes of rent, are the quality of the product, the 
extent of the deposits, the depth of working, the distance 
from a market. 

There are, in the United States, vast deposits of coal, for 
instance, near the surface, not far from a market, which will 
not pay for working, even if no rent be exacted, because the 
quality is so poor, though the coal will burn, v/ill give out 
light and heat, and, if delivered at the furnace free of cost, 
would be worth using. 

There are other deposits of coal, of excellent quality, 
which will not pay for working by reason of the thinness of 
seams, or their narrow extent laterally. There are, again, 
vast deposits of good coal, which, by reason of their depth 
below the surface, are not sought by productive industiy and 
perhaps never will be. There are still others which, by rea- 
son of distance from market, are not now worth taking up 
at the government rates, which may in another century sup- 
ply great manufacturing cities with power. These and other 
mines, a little more fortunate in their character or location, 
which will just pay for working, furnish the no-rent mines. 
Above these are mines which pay rent, the degree of pro- 
dtictivencss rising until the rental of a single mine becomes 
the income of a prince. 

257. The Rent of Buildings and of Permanent Improve- 
ments on the Land. — The so-called rent of buildings, exclus- 
ive of ground rent, is not governed at all by the economic 
law of rent, but by the principles which regulate the interest on 
capital, of which we are next to speak. A man owns a build- 
ing lot, for which he coiild obtain a ground-rent, that is, rent 
proper. Being also a capitalist, he erects a building thereon. 
Why does he so ? Because he believes that, in addition to the 
rent of the ground, he can also obtain for the occupation of 
the house erected thereon, a fair remuneration for the use of 
his capital, a remuneration equal (damage, trouble and risk 
of loss being taken into account) to what he would receive, 
were he to put his capital into the form of live stock or rail- 
road shares, or government bonds. Tlie building is an invest- 



THE UNEARNED INCREMENT OF LAND. 239 

ment of capital. If his investment has been shrewdly 
made, he will receive from his tenants a sum which, in the 
view of the economist, consists of two parts, rent, proper 
— ground rent — and interest. "We shall see, in the next 
chapter, that these two elements of the remuneration paid 
for the use of the house, are governed by widely different 
laws. 

258, The ITnearned Increment of Land — We have seen 
how rent arises, under the private ownership of land, and what 
principles govern its amount and economic direction. We 
have seen that rent is jjurely a question between landlord 
and tenant, not between emj)loyer and employed, not between 
the producer and the consumer of agricultural produce. We 
have seen that, conceding the private ovrnership of land, rent 
must, so far as economic forces are concerned, remain in the 
hands of the owner of land ; that it can only get into the 
hands of the tenant as a gift ; that if it reaches the hands of 
the tenant, no economical forces will carry it any further so 
that it can get into the hands of the agricultural laborers 
or of the • consumers of food, except by a further gift or 
series of gifts. 

We have also seen that, Avhenever the limit of cultivation 
is lowered, that is, whenever a less productive grade of soils 
(less productive, whether by reason of comparative Infertility 
or comparative distance from market) is, by the increasing 
demands of population for subsistence, brought under cultiva- 
tion, the rents of all previously cultivated lands are corre- 
spondingly raised, to the enrichment of their owners, not by 
reason of any increase in the yield of such lands, or by reason 
of any exertions put forth by the owners, but solely by reason 
of the necessity of cultivating a lower grade of soils for the 
subsistence of population. 

Upon this view of rent, has arisen the question, Why should 
the private ownership of land be permitted to exist ? at any 
rate, why should this incident of private ownership, the 
aggrandizement of the owner through the groAvth of the com- 
munity, to which he may not have in the least contributed, be 
longer permitted to exist ? Why should not this " unearned 



230 POLITICAL ECONOMY. 

increment of land," to use Mr. Mill's phrase, go to the com- 
munity, and not to any individual ? 

This demand has been made very vigorously, of late years, 
by a school of writers which embraces more than one econo- 
mist of reputation. As the elements of the question are not 
purely economical, but embrace considerations of political 
equity and political expediency, I shall reserve all remark 
concei'ning it till we reach Part VI., where I shall deal with 
Some Applications of Economical Principles. 



CHAPTER in. 

INTEEBST. 

259.— Definition of Interest — We have seen one share cut 
off from the product of industry — rent ; one claimant satis- 
fied — the landlord. The reader doubtless now sees why this 
topic was first treated. In economical theory, as generally in 
law, this is the first claim to be adjusted and paid. We can 
make no progress — not so much as by a single step — towards 
discovering the principles which govern the division of the 
product of industry among capitalists, employers, and labor- 
ers, until rent is taken out, until the claim of the landlord is 
satisfied. Hence the topic, Rent, comes first, in a treatise on 
the distribution of wealth. 

We are now to speak of Interest: the share of the capitalist 
in the product of industry. 

In Part II., we enquired into the origin and office of capital. 
We saw that capital consists of savings out of earnings, the 
native powers of the earth, air and water not being regarded 
as capital. Wealth having been produced, some of it, much 
of it, must soon be consumed, in order to sustain the produc- 
ino- classes, and to repair the waste inevitably attendant 
upon production, and even upon the mere lapse of time. All 
of it may be so consumed, and will be, under the urgent and 
constantly recurring desires which wealth alone can satisfy, 



INTEREST. 231 

unless some motive for saving can be found which shall 
prove strong enough to withstand the impulses to immediate 
gratification, and to wrest a jDortion of wealth from the jaws 
of appetite. We have shown what that motive is, and how 
it manifests itself in a savage or barbarous condition of life. 
In an advanced state of society, the motive to saving is not so 
much found in the desire of the individual to accumulate tools 
and materials for his own handling, as in the desire to obtain 
interest from some one else, for the use of that portion of 
wealth whose consumption is thus postponed. To the varying 
strength of that motive with different men, and different 
races, we shall have occasion to refer further on. 

260. Interest not Paid for the Use of Money. — It has been 
said that interest is the compensation paid for the use of 
capital. The usual form of statement is that interest is paid 
for the use of money. Broadly speaking, this is not true. 
Money, which is one of the many forms of capital, is, indeed, 
often used as the agent for effecting the loan of other species 
of capital. But in these cases, it is not the money, jjhilosophi- 
cally considered, that is borrowed: The interest paid is for the 
use of the capital obtained through that agency. One borrows 
15,000, and gives a note for that sum, with interest. With 
this money he purchases live stock, machinery for his factory, 
or goods for his trade ; these were what he wanted ; 
these were what he really borrowed ; these are what he 
pays interest upon. The money was solely a means to 
that end. 

But money is not always ; it is not in a majority of cases ; 
in a highly advanced state of industrial society it is, indeed, 
rarely, the agent in effecting the loan of capital. The country 
merchant buys goods and gives his notes for two, four, and six 
months, promising to pay the price with interest. Interest on 
what? On money? No money passed in the transaction. 
What was borrowed was hardware and crockery, dry goods, 
and groceries. The young farmer buys cattle to stock his 
farm, and gives his note, promising to pay, with interest : not 
interest on money, for he has had none, but interest on the 
value of cows and working oxen. 



233 POLITICAL ECONOMY. 

261. The Hate of Interest.— Let us now enquire how the 
rate of interest is determined. 

Since the use of capital is a matter of bargain and sale, or of 
exchange, what should determine the rate of interest but the 
demand for, and the supply of, loanable capital ? 

Here we see the futility of the notion, which, from time to 
time, obtains a strong hold on the public mind of America, 
and, indeed, of all hew countries, that the rate of interest is 
to be lowered by increasing the supply of money through the 
issue of paper notes. Men wish to borrow that they may get 
control of the agencies of production : cajjital in its various 
forms. The amount to be paid for the use of capital will 
depend on its abundance compared with the occasions for its 
productive use. The issue of money will not increase the 
number of horses and cattle and plows, nor will it build shops 
and warehouses or construct machinery for manufacture or 
for transport. 

If the people of a community be thriving and progressive, 
the demand for capital, to start new enter^Drises or to enlarge 
those already established, will be very great. If the commu- 
nity be young, having brought to new fields the social and 
industrial ideas, tastes and ambitions of an old society, with 
but little of its accumulated me.ins, the supply of cajsital will 
be scanty, and the rate of interest will rule high. 

Is this high rate of interest a hardship ? No, the hardship 
lies in the scarcity of capital. The high rate of interest 
becomes the active means of removing that hardshijD, through 
increasing the supply of cajjital available to meet the demand. 
How is this ? 

Capital is, as we have seen, the result of saving. Interest, 
then, is the reward of abstinence. A part, a large part, of 
all produced M^ealth must be at once consumed to meet the 
conditions of human existence; but the remaining portion 
may be consumed or may be accumulated, according to the 
will of the owner. The strength of the motive to accumula- 
tion will A'ary with the reward of abstinence. If tliat be 
high, the disposition to save will be strengthened, and capital 
will be rapidly accumulated; if that be low, that disposition 



INTEREST. 233 

will be relatively weak, and capital will increase slowly, if, 
indeed the body of existing capital be not dissipated at the 
demands of appetite. We do not say that the strength of 
the dis]30sition will be increased proportionally to the increase 
of remuneration; that it Avill, for instance, be one-fifth 
greater at six per cent, interest than at five ^qv cent. Moral 
philosophy has reached no such precision in guaging the 
motives of men. But it is certain, beyond cavil, that, among 
the same j)eople, and at the same time, the higher the rate of 
interest the sti'onger will be the motives which lead to saving: 
the more rapid the accumulation of capital.* 

So we see that a high rate of interest, instead of being the 
cause of an evil, is really its cure ; and that to depress the 
rate of interest, as, for example, by force of law, would be to 
retard the processes by which capital is supplied. 

As a high rate of interest is not in itself an evil, so a low 

*Ia general, taking all classes of producers into account, this will be so. 
Yet the effects of a reduction of the rate of interest is not wlioUy upon 
one side. Prof. Marshall very justly exhibits an effect of a reduction 
of the rate of interest, which, witli a certain class of producers, might 
and probably would operate in the opposite direction. 

"A high rate of interest no doubt affords a liberal reward of abstinence, 
and stimulates the saving of all who are ambitious of earning social posi- 
tion by their wealth. Again, if a man is in doubt whether to save in 
order to make provision for himself or his family, the expectation of a 
high rate of interest may induce him to save ; because the higher the 
rate of interest, the larger the amount of future enjoyment which can 
be obtained by sacrificing a given amount of present enjoyment. 

" But the history of the past and the observation of the present show 
that it is a man's temperament, much more than the rate of interest to be 
got for his savings, which determines whether he makes provision for 
his old age and for his family, or not. Most of those who make such a 
provision would do so equally whether the rate of interest were low or 
high. And when a man has once determined to provide a certain annual 
income, he will find that he has to save more if the rate of interest is 
low than if it is high. Suppose, for instance, that a man wishes to pro- 
vide an income of £400 a j^ear on wliich he may retire from business, or 
to insure £400 a year for his wife and children after his death. If the 
current rate of interest is 5 per cent., he need only put by £8,000 or 
insure his life for £8,000; but if it is 4 per cent., he must save £10,000, or 
insure his life for £10,000." 



234 POLITICAL ECONOMY. 

rate of interest does not necessarily imply a condition which 
is a subject of congratulation. A low rate of interest may 
mean that, in a thriving, progressive community, the accumu- 
lation of capital has gone on so rapidly as to outrun the occa- 
sions for its productive use : or, it may mean that the people 
are so dull, indolent and unambitious, or the state of society 
so disordered, that commercial and manufacturing enterprises 
are not undertaken and no enlargement of traditional indus- 
tries is looked for, and, consequently, a small amount of capital 
more than suffices for such scanty needs. 

262. The Rate of Interest tends to a Decline.— Despite 
the urgent and ever-recurring demands for the consumption 
of wealth in various forms of self-indulgence ; despite the 
occasional reversal of the course of accumulation, in the occur- 
rence of war, and the fearful waste of resources which is 
involved in protracted contests ; despite all the effects of 
misgovernment and social disorder, wealth tends strongly to 
increase, not only throughout the civilized world as a whole, 
but throughout each civilized nation, without excejJtion. 
Since the application of steam power to manufactures and 
transportation, this rate of increase has been so great as even 
to transcend the demand for the uses of wealth in undertaking 
new industrial and commercial enterprises, and thus, with 
some temporary exceptions, interest has tended to decline with 
the progress of years. 

In this respect interest differs markedly, we may say, essen- 
tially, from rent. The latter tends to rise, with the lapse of 
time, the increase of population, the growth of wealth. The 
former tends generally to decline under the same conditions. 
This constitutes one of the two reasons Avhy the economist 
insists upon treating interest and rent separately in his dis- 
cussion of the distribution of the product of industry. The 
second of these reasons Avill now be stated. 

263. There is no No-Interest Capital — We have seen that 
the whole theory of rent rests on the assumption that there is a 
body of no-rent lands. Tliese serve as the base from which to 
measure upwards the successive degrees of productiveness of 
the lands bearing: rent. 



INTEREST. 235 

There is nothing to correspond to this in the theory of cap- 
ital. The economist does not find any no-interest capital. In 
theory, all capital bears an interest, and all jDortions of capital 
bear equal interest. If one jjortion of capital, in fact, brings no 
interest to its owner, or brings an interest below that obtained 
by the owners of other portions, this is because of misad- 
venture, due to accident or erroneous calculation. 

Of course, it is anticipated by the political economist that 
the interest realized by portions of capital actually loaned will 
vary not a little, even within the same market, inasmuch as 
competition is never perfect in any sphere ; but what has 
been stated shows how fundamentally the theory of inter- 
est differs from that of rent. For this and the reason 
last stated, the political economist can never, without self- 
stultification, regard land and capital as one, in treating of 
rent and interest. 

264. Is there a Minimum rate of Interest?— We have said 
that the inducement to save diminishes, other things equal, as 
the rate of intei-est falls. Is there a point at which the dis- 
position to consume wealth for purposes of comfort or luxury 
will equal in strength the disposition to acquire an annual 
income by saving it for productive uses^ so that no further 
accumulation will take place, the savings out of earnings 
thereafter being only sufficient to make good the waste of pro- 
duction and keep up the stock of caj^ital ? 

If there is a minimum rate of interest, it is very low. Fif- 
teen or twenty years ago, six per cent, was the traditional 
rate of interest in New England, and probably few of us then 
thought that, if the rate were to go lower, it really Avould 
be worth while to "save." We had become so accustomed 
to six per cent, that it had come to seem as if there were 
some law of nature that fixed that rate. Six per cent : Why 
of course a man would get six per cent ! Yet since that firae 
we have seen the rate of interest steadily fall, in consequence 
of the vast accumulation of capital, till now loans ;of cajjital 
are to be had on good security at four and one-half or even 
four per cent., while the government borrows all it wants at 
three and one-half or even three. The English government 



336 POLITICAL ECONOMY. 

has long borrowed at three per cent. The government of 
Holland, during the most flourishing period of the Republic, 
was even able to borrow at two per cent. 

265. False Interest : Insurance of the Principal. — A great 
deal that is paid under the name of interest is not interest in 
the true sense, but is merely a premium for the insurance of 
the principal sum lent. Real interest only comprises that part 
of the payment made which would be paid were the return of 
the principal, at the date of the maturity of the obligation, a 
matter of reasonable certainty. Absolute assurance can be 
reached in no human transaction ; but where the risk is so 
small that it amounts to nothing in the mind of the lender, as 
in the case of British consols, or of a " bottom mortgage," 
where the sum lent is only a half, say, or a third, of the value 
of improved real estate, there we have an instance of real 
interest, pure and simple. Whatever, in the same market, at 
the same time, is paid above this, for the use of capital, is of 
the nature of insurance against the risk of losing the amount 
lent. If the rate of real interest in London is 3 per cent., as 
determined by the price of consols, loans on various kinds of 
fair security may range from that rate up to 5 or 6 per cent. ; 
while all the time note-brokers are " shaving " the " paper " of 
second and third rate dealers at from 10 to 20 per cent, dis- 
count.* 

266. Extra-Hazardous Risks. — The operation of the mind 
of the person who lends capital, at a high interest, upon poor 
security, is a familiar one. He sees the opportunity to obtain 
interest proper — the normal remuneration for forbearing to 
consume in immediate self-indulgence the wealth he has 
created, or come into possession of — without encountering any 
appreciable risk of losing the principal sura. But there is 
offered him a higher, perhaps a much higher, rate of interest, 
for a loan into Avhich a chance of total loss enters. His mind 
balances the risk against the prize. The yearly value of the 
latter is definite. It is three, five, or ten per cent, on the sum 



*'Tii ordinal)' times, iu London, the second-class bill-brokers charge 
tin'ir customers Is. on the £ on 3-niouths' bills." — McLeod: — Econ. Phil, 



INTEREST. 237 

asked to be lent. Were he to receive this added interest for a 
sufficient number of years, he could even afford to lose the 
principal. He may receive the interest daring the full term 
of the obligation, and then have his principal back again. He 
knows also that he may receive but one or two annual pay- 
ments of interest, and then be compelled to recognize his 
investment as a total loss. 

Of the degree of risk there is no measure. The ablest 
statistician, the first financier of the world, could give no 
mathematical statement of the chances for or against the ulti- 
mate repayment of the loan. The matter lies very vaguely 
even in the mind of the shrewdest banker or broker. He sees 
that there is great risk or little risk, very great risk or very 
little risk, or that the elements on which the ability of the bor- 
rower is to depend are altogether shrouded in uncertainty; 
but as to giving a mathematical exj^ressioia to the value of the 
loan, based on the chances of loss, the man who does it is 
deceiving either himself or some one else. 

267. — With the great majority of lenders no calculation 
whatever, deserving of the name, enters into the negotiation 
of loans where more than double interest is j^aid. The capi- 
talist is -simply tempted beyond wliat he is able to bear, or 
else, if a man of another temper, the enhanced inducement 
becomes of itself a reason for refusing to lend his money, and 
he shuts the door upon negotiation. Look at the hundreds of 
millions, the thousands of millions, that have been sunk in 
railway shares and mining stocks by jDcrsons who had not the 
smallest qualifications for estimating the value of the risk, but 
whose prudence gave way under the stress of temptation from 
an offer of ten, or twelve, or twenty per cent, per annum ! 
Writers on the subject of Interest are too much given to 
assuming that the losses sustained in extra-hazardous' invest- 
ments are balanced by the gains, and that the " average rate " is 
somehow maintained. The fact is, few lenders are capable of 
making any computation of the value of the risks they take; 
few even go through the form of doing so for the satisfaction 
of their own minds. The only thing that can be said with 
assurance is that the vast majority of lenders on extra- 



238 POLITICAL ECONOMY. 

hazardous risks are losers. The high rate of interest proves 
simply a snare. Tempted by the offer of 12 or 20 per cent., 
they take risks for which 40 or 50 would be inadequate. 
Interest is paid, dividends are declared, just long enough to 
complete the subscription, just long enough to secure the last 
gudgeon in the pool. And it is often astonishing to note the 
class of men who have contributed to the success of a scheme 
which was in its very terms an insult to common sense. 
Bought wit is the best wit; but in this matter, exjjerience 
seldom suffices for w^isdom. The susceptibility to humbug is 
perennial in the human breast. After a very dance of folly, in 
which figure " The Periwig Company, and the Spanish- 
Jackass Company, and the Quicksilver-fixation Comi^any;" 
in which prospectus vies with prospectus to see which shall 
be the more preposterous; and in which investor vies with 
investor in recklessness, there comes, indeed, a resting spell, 
more through exhaustion of means than through acquired pru- 
dence ; but the first tingle of reviving activity in trade 
and manufactures starts the fever of speculation anew, and 
the knaves find the dupes as numerous and as credulous as 
ever. 

268. The Wreckers of Trade.— The foregoing remarks 
apply to the great majority of investors who take extra-haz- 
ardous risks. Yet there are in every large commercial com- 
munity those who reap enormous rate& of interest with only 
rare losses to offset their gains. These are men with preter- 
natural s-agacity to know when it is safe to trust a rogue, how 
far to ride with a spendthrift towards his ruin, just the point 
at which to leave a tottering house Avhose foundations they 
have undermined by drains of exorbitant interest, just the 
moment at which to " unload" a stock; men with the cunning 
to secure themselves against loss, whoever else may suffer ; 
men who have the hardness to exact the last penny of their 
dues, at whatever distress to the debtor. Such men are the 
wreckers of trade. Their gains are great, for tliey reap the 
enormous profits of extra-hazardous risks, yet seldom lose in 
the principal sum lent. Rarely, indeed, is an embarrassed firm 
saved by their aid. Resort to them is the almost certain pre- 



INTEREST. 239 

cursor of ruin. It serves to delay the catastrophe a little, 
only to make it utter and remediless at the last. 

269. Double Interest.— The foregoing remarks apply only 
to extra-hazardous risks, where, to put it roundly, more than 
double interest is paid. With investments or temporary loans 
inside this limit, a different rule obtains. The rates of inter- 
est paid are still graded with very little real appreciation of 
the degrees of risk taken; the sums obtained as insur- 
ance on the principal sum cannot be assumed to be 
even approximately proportioned to the hazard; yet it is gen- 
erally possible for an investor or lender to say, this is more 
safe than that : the adverse chances here are few and small ; 
are many and great there. 

But the most marked difference between extra-hazardous 
and ordinary risks in the loan of capital is that, while, with 
the former, the rates obtained are, as a whole, taking all 
classes of investors or lenders together, far below the actuarial 
value of the risks taken, and such loans and investments, in 
spite of the acuteness of the professional money-lending class, 
result, as a body, in loss; with ordinary risks, the rates of inter- 
est are, on an average, above their true value, as estimated from 
the basis of bottom mortgages and government loans, with 
reference to the danger of the loss of the principal sum. 
This results from the fact that the natural conservatism of 
large bodies of property owners, and the very strict laws 
regulating the accountability of trustees, fix a rate of inter- 
est for loans and investments deemed absolutely safe, which 
is below their proportional value, so that any large lender 
placing his risks judiciously and s^^reading them somewhat 
widely, is mathematically certain to realize a larger return 
from his capital through a term of years, after deducting 
losses, than if he had invested in the most approved securi- 
ties. 

For example, in England, a few years ago, the return from 
capital invested in government bonds was about 3.3 percent.; 
while the savings banks realized on their investments, which 
may be assumed to have been made in a very conservative 
spirit, 4tV j)er cent., and the average return to investors in 



240 POLITICAL ECONOMY. 

railway stocks was 5 per cent. Now, here is an undeniable 
case of disproportion. Any shrewd and sensible man selling 
£100,000 of consols, investing the proceeds in the shares of 
ten reputable railways, and compounding through a term of 
years the extra \-^ per cent., per annum, would create a fund 
far more than sufficient to offset any losses he might sustain from 
ill success m an individual case. This disproportion is due, 
first, to the estimation, higher than an actuarial value, placed 
by large classes of investors upon the feeling of security, the 
absence of all apprehensions and occasional alarms, and, sec- 
ondly, to the favor extended by the courts to the investment 
of trust funds in government bonds. 

270. Differing Rates of Interest in the Same Market.— 
We have laid down the proposition (par. 114) that in one 
market, at one time, there can be but one price for equal 
portions of the same commodity. The plain facts of interest 
seem to controvert this proposition. In the same raai'ket, at 
the same moment, the price paid for the use of capital may 
range from three per cent, upwards, to five, to ten, to twenty. 
Is this because between the portions of capital so loaned an 
economical difference exists, which creates a preference for 
one over the other, as when several different grades of flour 
are sold at several distinct prices ? No, the capital loaned 
may be, in all economical respects, uniform. A man having 
$30,000 on deposit in a bank, may, on the same 
day, buy $10,000 worth of " governments " which pay 4 per 
cent., and give his check on the bank for one-third of his 
deposit; buy "railways" paying 6 per cent, dividends, to 
the same amount, giving his check for another third part 
of his deposit ; and loan the remainder at 10 per cent, 
on personal security. Manifestly, between the three por- 
tions of capital loaned or invested, no economical differences 
existed. 

To what, then, is the phenomenon noted, due ? In part to 
the cause discussed under the last head — the insurance of the 
principal sura lent. Twenty years ago there were on the stock 
market, in Lombard street, three kinds of government secu- 
rities: English consols, bringing, then, 3|- per cent, interest' on 



INTEREST. 241 

the investment; Russian bonds bringing 5 J per cent., and 
Turkisb bonds bringing 10|- per cent. Every day large 
amounts of these bonds were bought by Englishmen. Doubt- 
less, some purchasers bought portions of each kind of securi- 
ties. Inasmuch as the possibility of the English government 
becoming bankrupt, or tending to repudiation, is never admit- 
ted by an Englishman, the dividends received from the " con- 
sols " constituted jDure interest, the reward of abstinence, the 
sufficient inducement to abstain from the immediate enjoy- 
ment of wealth. The added two per cent, obtained from the 
Russian bonds represented the value, as viewed by the pur- 
chaser, of the insurance of his capital against the risk of loss 
attendant on loaning it to the government of a people, pos- 
sessing great natural resources, indeed, and bound together by 
a strong national feeling, but rude in manners, primitive in 
industry, with their political questions largely unsolved, and 
having points of possible collision with England which might 
not improbably involve the two countries in war. But while 
the Englishman demanded h\ per cent, per annum from the 
Russian government, as the consideration for his loan, he 
exacted just twice that consideration from the Turkish gov- 
ernment, though a government bound to Great Britain by 
the strongest ties of self-interest, because both the resources 
and the good faith of the Turkish government were reasona- 
bly suspected, and its existence was dependent on support 
from foreign powers. Of the V^\ per cent, interest obtained 
on the Turkish loan, 7^ was the price of the insurance of the 
principal, according to the degree of risk involved, as viewed 
by the purchaser. 

271. Imperfect Competition in the Money Market.— 
We have twice, in the foregoing paragraph, used the expres- 
sion, " as viewed by the purchaser." Hereby is indicated a 
consideration, which, while it is of importance in any market, 
is of especial importance in the market where capital is 
loaned, the so-called money-market. In quoting Prof. Jevons' 
statement of the reason, why, in the same market, at the same 
moment, all equal portions of a perfectly homogeneous com- 
modity must bring the same price, we added that this propo- 
16 



243 POLITICAL ECONOMY. 

sition assumed perfect competition, all the conditions of a good 
market being fully realized. Now, perfect competition only 
exists where there is ample and accurate information; but in 
bargains relating to the use of capital, so little is known by the 
parties resi^ecting the supply of and the demand for capital, 
especially where the existence of usury laws drives borrowers 
and lenders to shifts and evasions; so much more are men 
disposed to conceal the fact and the extent of their borrowing 
than the fact and extent of their buying; so much does the 
repayment of the principal depend, in spite of law, upon the 
good faith of the borrower, irrespective of his prosisective 
ability ; and so much is that ability itself made, by the very 
nature of the agreement, to depend upon the contingencies of 
the future, it may be, of a distant future, that the market for 
the loan of capital can rarely be called a good market, 
even in the most limited and partial sense. All bargains 
in the " money market," as the market for the loan of capital 
is popularly called, take place necessarily uj)on information 
imperfect at the best, often of a private and confidential 
nature; so that it frequently happens that, in the same mai*- 
ket, at the same moment, loans, upon equally good security, 
are made at very different rates; while it is not at all unlikely 
to occur, that, of two loans of unequal value, as to security, the 
more hazardous may be made at the lower rate of intei'est. 

272. Differing Rates of Interest in Different Markets. — 
Of course, all that has been said of differing rates of uiterest 
in the same market holds good of different markets ; but, 
wholly in addition to the causes which produce these differ- 
ences, is reason found for differing rates in distinct markets.* 
Thus it is notorious that, for long terms of years, the loan of 
capital could be obtained, upon what was locally regarded as 
approved security, for 4 per cent, in London as freely as for 
6 cent, in New York, or 8 per cent, in Chicago, or 12 per cent, 
in Iowa, or Kansas. 

* " All persons whose demand for, or whose supply of a commodity 
goes to make up the aggregate demand for or supply of that commodity, 
in any given place, and hence to affect the price of that commodity, 
in that place, belong to the same market." (Antea, par. 117.) 



INTEREST. 243 

Whence these differences ? In some degree, doubtless, these 
successive additions of interest, as capital passed westward, 
were of the nature of insurance on the principal sum lent ; 
that is, were not true interest. In each case, the security might 
be as good as could ordinarily be obtained in that community ; 
but security is a relative term ; what would be deemed ample 
security in one place would not pass the scrutiny of lenders in 
another. The older the country the greater, other things 
equal, the permanence of economical relations ; the more does 
industry settle down within traditional limits, and acquire a 
definite and calculable rate of increase ; the higher the value 
assigned to commercial reputation, the more carefully are the 
men selected who are to control the agencies of production 
and trade, the fewer are the chances of revolutionary changes 
in business. 

273. Disinclination of Capital to Emigrate. — But not all, 
or even the greater part of the differences which have been 
noted, are due to this cause. It is the disinclination of capital 
to emigrate, which allows such wide differences in the local 
rates of interest. This disinclination is due to various causes. 
In part, it is the continuing effect of old laws now generally 
abrogated, discriminating against aliens; in part, it is due to the 
suspicion that strangers may not be fairly dealt with by courts 
and by officers of the law, in case of seizures or foreclosures ; 
in part, it is due to the apprehension of the effect of inter- 
national hostilities, which always cause a suspension of inter- 
est-payments, if not the forfeiture of the principal ; in part, 
it is due to the fact that investments made at a distance must 
generally be made through an agent, upon whose good faith 
or sound judgment may depend the fate of the entire princi- 
pal. While these causes may operate, singly or in conjunc- 
tion, to create local differences of interest, the main cause of 
such differences is found in the inertia of the owners of capi- 
tal, making them ready to accept lower rates upon the spot than 
could perhaps be obtained with no less safety through enquiry 
and effort at a distance, and, secondly, in the necessary lack 
of information as to prevailing rates of interest and existing 
degrees of security for the principal. 



244 POLITICAL ECONOMY. 

I remember to have read somewhere an estimate by an 
economist of reputation, fixing this " disinclination of capital 
to emigrate" at two per cent. It is doubtful, however, whether 
the matter is fairly subject to any such form of statement. 
The disinclination to invest capital abroad must differ among 
men of different races ; it must differ with differing condi- 
tions respecting the communication of news, and respecting 
international relations. Indeed, it must differ widely with 
differing moods of the public mind. At times, it may disap- 
pear altogether under the excitement of speculative mania, 
as in the days of the South Sea Bubble, and in the year jjre- 
ceding the English crisis of 1825. It sometimes seems even to 
be the case that loans and investments are made abroad more 
freely than at home, probably because it is less easy to detect 
the fallacy of schemes bearing foreign names, and relating to 
distant lands. 



CHAPTER IV. 

PEOFITS. 



274. Definition of Profits.— We have now seen two shares 
cut off the product of industry — rent and interest ; two 
claimants satisfied, the landlord and the capitalist. 

We now come to enquire respecting the share of the 
employer, who organizes and conducts production, deciding 
what shall be produced, in what amounts, of what varieties, 
materials and patterns, and to what persons, at what prices, 
and on what terms of payment^ the products shall be sold. 

275. The Entrepreneur Class. — We have seen that in a 
primitive state of industrial society the employer does not 
appear. When, however, the forms of production become 
many and complex, when the hand-tool is replaced by the 
machine; when many persons of various degrees of skill, 
strength and intelligence are united in the same industrial 
operation ; when the materials consumed are gathered from 



THE ENTREPRENEUR. 245 

distant lands, and the products, in turn, are distributed 
widely to consumers not known to the jiroducer, and are sold 
largely upon credit; when, moreover, a few simple, standard 
styles give way to ever varying fashions, in material, in form, 
in color, demanding incessant vigilance and a high degree of 
commercial genius to anticipate the fluctuations of the market, 
in such a state of production the employer, the master, the 
entrepreneur, becomes a necessity of the situation. He per- 
forms a function which is indispensable to a large and varied 
production of wealth, and for doing so receives a remuneration 
out of the product of industry, which we call profits. 

276. Unfortunately, as it seems to me, the entrepreneur 
function has not been adequately treated, if, indeed, it has 
been in the smallest degree recognized. English and American 
economists, in general, have chosen to regard the capitalist as 
the employer of labor, that is, as employing labor merely 
because of the possession of capital, and to the extent only 
to which he possesses capital. We have just now said that, 
in an early stage of industrial society, the employer does not 
appear in distinct shape. Where the forms of ]3roduction are 
few and simple, and where the producer and the consumer 
are either the same person, or are found in close proximity, 
the possession of capital constitutes a sufficient qualification 
for the employment of labor, and, on the other hand, a supply 
of food, coarse materials and jDrimitive tools is all that labor 
requires, with which to initiate jDroduction. But, in the later 
stages of industrial development, the mere possession of 
capital no longer constitutes the sole, or even the main quali- 
fication for employing labor; and, on the other hand, the 
laborer no longer looks to the employer to furnish merely 
food and tools and materials, but to furnish, also, technical 
skill, commercial knowledge and powers of administration; 
to assume responsibilities and provide against contingencies; 
to shape and direct production and to organize and control the 
industrial machinery. So imjDortant and difiicult are these 
duties of the entrepreneur, so rare are the abilities they 
demand for their satisfactory and successful performance, 
that he who can discharge these will generally find the capital 



246 POLITICAL ECONOMY. 

required. If he be the man to conduct business,* food, tools, 
and materials will not, under our modern system of credit, long 
be wanting to bim. On the other band, without these higher 
qualifications, the mere possessor of capital will employ labor at 
the risk, almost the certainty, of total or partial loss. The 
employer, the entrepreneur, thus rises to be the master of the 
situation. It is no longer true that a man becomes the 
employer of labor, because he is a capitalist. Men 
command capital because they have the qualifications to 
employ labor. To men so endowed, capital and labor alike 
resort, for the opportunity to perform their several functions 
and to entitle themselves to shares of the product of industry. 
By this is not meant that the employer is not, in any case, 
or to any extent, a capitalist, but that he is not an emj)loyer 
to the extent only to which he is a capitalist, nor is he an 
employer at all because he is a capitalist. 

277. Use of the word Profits by English and American 
Economists. — As the English and American economists gen- 
erally leave the entrepreneur out of their discussion of pro- 
duction, so they leave out of view the share of the enti'e- 
preneur in treating of the distribution of wealth. "Profits" 
come to mean only the remuneration for the use of capital, 
what we call distinctively interest ; or, if it be recognized that 
the man who organizes and conducts industrial operations 
receives something over and above the mere return upon that 
l^ortion of the capital employed by him which he owns in his 
own right, that something is disparaged by being termed " the 
wages of suj^ervision and management." 

Now it is fundamental in my theory of distribution that the 
entrepreneur class, the employers of labor, receive a share of 
the product of industry which is at once so important, through 
itsaamount, that it cannot possibly be omitted from considera- 
tion, and so widely different in the principles by which it is 
governed, that the term wages cannot be applied thereto with- 

* "Many employers of labor, in some parts of England more than half, 
have risen from the ranks of hibor. Every artisan wlio has exceptional 
natural abilities, has a chance of raising himself to a post of commaud." 
— Marshall's " Economics of Industry." 



RELA TION OF PROFITS TO RENT. 247 

out inducing a wholly unnecessary and mischievous confusion 
of ideas, leading directly to false results. 

To the entrepreneur's share of the j^roduct of industry I shall 
strictly apply the term profits. This use of the term profits,* 
in my judgment, tends to promote clearer conceptions regard- 
ing the distribution of wealth, in the modern industrial state. 

278. Profits a Species of the Same Genus as Rent. — In 
my opinion, profits thus defined bear a very strong resem- 
blance to rent. In this view I follow Archbishop Whately, 
who, in the appendix to his treatise on Logic, declares that the 
rent of land is only a species of an extensive genus, although, 
as he complains, the English economists have treated it as con- 
stituting a genus by itself, and have either omitted its cognate 
species, or have included them under genera to which they do 
not properly belong. If this view is correct,f the principles 
deduced therefrom will be of very great consequence, not only 
to political economy, but to social philosophy. Let us, there- 
fore, state again the essential differences between Rent and 
Interest. 

1st. A portion of the land cultivated for the supply of any 
given market, bears no rent ; this we call the no-rent land. 
The rent paid for any jiiece of land is exactly measured, in 
theory, by its excess of advantages in production, over the 
advantages in production pertaining to the no-rent land. On 
the other hand, there is no no-interest capital. It is true that a 
person lending capital may not only not obtain, in the result, any 
interest for its use, but may even lose the principal ; but this will 
be due to violence or fraud, to flood or fire or stress of weather, 
or, else, to the unsuspected incompetency of the borrower to con- 

* The following definition, in AVebster's Dictionary of 1859, corres- 
ponds precisely to the use of this term proposed in the text: "The 
'profit of tlie farmer and the manufacturer is the gain made by sale of 
produce or manufactures, after deducting the value of the labor, materials, 
rents, and all expenses, together with iJ/ie interest of the capital employed, 
whether land, machinery, buildings, instruments, or money." 

f I note that Prof. Marshall uses the expression; "Rent of rare natural 
abilities." This expression harmonizes with the view presented in the 
text. 



248 POLITICAL ECONOMY. 

duct business, all of wliich we may sum up iu the word acci. 
dent. There is no reason why such accidents should befall one 
portion of capital and not another, Avhereas there is a reason, 
in the nature of the case, why one piece of land should bear 
a rent and another not ; why one piece should bear a high and 
another a low rent. Theoretically all capital bears interest ; 
and, theoretically also, all capital bears the same rate of inter- 
est, exceptions being either, first, apparent only, as when an 
additional per cent, is charged, not as interest proper, but for 
the insurance of the principal, or secondly, those arising from 
the disinclination of capital to emigrate, from the ignorance or 
inertia of lenders and borrowers, or from the force of laws inter- 
fering with contracts of loan. 

2nd. It follows from the above, that interest forms a 
part of the price of all products, whether the capital con- 
cerned be employed to assist the operations of the agricultur- 
ist, the manufacturer, the transportation comj)any, the mer- 
chant or the banker ; but that rent forms no part of the 
price of agricultural produce (for the demonstx-ation of this 
theorem, see par. 243), and that the amount received by the 
landlord, as rent, is not paid either by the agricultural laborer, 
or by the consumer of the produce, whether food, fuel or 
fibre. 

279. Profits Governed by the same Law as Rent. — Hav- 
ing restated the essential distinction between interest and rent, 
I shall now undertake to show that profits, the remuneration 
of the entrepreneur, partake very largely of the nature of rent, 
being a species of the same genus ; and that, so far as this is 
the case, profits do not form a part of the price of the pro- 
ducts of industry, and do not cause any diminution of the 
wages of labor. 

Tlie successful conduct of business under free and active 
competition, is due to exceptional abilities or to excejstional 
opi^ortunities. This we may assume without adducing any 
evidence, as too clear to be made the subject of question or 
cavil. Whether due to exceptional abilities or to exceptional 
opportunities, my proposition could be equally well estab- 
lished, just as it makes no difference in the theory of rent. 



RELA TION OF PROFPTS TO RENT. 349 

whether a piece of land owes its superior adyantages for the 
purposes of cultivation to higher natural fertility, or to closer 
jjroximity to the market to be supplied. Yet it cannot be a 
matter of indifference to social philosophy whether the power 
to command profits be due to exceptional abilities or to except- 
ional opportunities; and we may, therefore, be pardoned for 
pausing to point out that the former are far more efficient 
than the latter, in securing profits. To justify this assertion 
it will be enough to refer to the notorious fact that a great 
majority of all business houses which have achieved notable 
success — in the United States, a majority so large that the 
exceptions are inconsiderable — have been founded by men 
who owed almost nothing to opportunity; perhaps by men 
who struggled uj) to the high place they occupied in the indus- 
trial order, not only without any adventitious helps, but 
against poverty or actual misfortune; while, on the other 
hand, nothing is more familiar than the spectacle of great 
houses, deeply founded, which have enjoyed great prestige, 
wide connections and large accumulated capital, dwindling 
away little by little, if not brought abruptly to their down- 
fall, under the successors of the original founder, without per- 
haps any positive fault being committed in the conduct of the 
business and without any blame requiring to be imposed upon 
any one for recklessness, or prodigality or vicious courses, sim- 
ply because the management which had been strong and bi'ave 
and wise, became commonplace, purj)oseless, timid and weak. 
All this is so familiar that I do not fear that any American, at 
least, will question the assertion that exceptional abilities 
have far more to do with the successful conduct of business, 
than exceptional opportunities. 

Inasmuch as it would make no difference, from the point of 
view of the political economist (however great the difference 
might be from the point of view of the social philosoj)her) 
whether profits were due to excejDtional abilities or to excep- 
tional opportunities, while the former are, in fact, much the 
more important factor in the successful conduct of business, 
I shall hereafter, for convenience and simplicity, speak of 
profits as due to exceptional abilities, just as in discussing 



250 POLITfCAL ECONOMY. 

the question of the use of land, we sjseak of rent as clue to 
differences in fertility, assuming, for convenience of illus- 
tration, all the fields under view to be in equal proximity to 
the market. 

280. A Theoretical No-Profits Stage of Production.— 
If, now, the number of men of exceptional abilities were suf- 
ficient or more than sufiicient to do all the business that 
required to be done, of all sorts and in all places; if these 
men, however much surpassing all other members of 
the industrial society, were among themselves equal in all 
respects which concern the conduct of business; and if this 
class, so constituted and so endowed, were distinguished from 
all not of their class so clearly and conspicuously that no one 
having these exceptional abilities should ever fail to be recog- 
nized, and no one lacking such abilities in the full measure 
should esteem himself caj)able of conducting business, or be 
so esteemed, for the purpose of obtaining credit, by those 
who have capital to lend, or goods to sell, we should then 
have a situation closely analagous to that which we described 
(par. 236) in the case of a community near which was found 
an amount of good land, of uniform quality, adequate, or more 
than adequate, to raise all the produce required for the sup- 
port of the community. The result would be, either' that this 
class would, by forming a combination and scrupulously adher- 
ing to its terms and its spirit, create and maintain a monopoly 
price for their services in conducting the business requiring to 
be done, which is so improbable as to be altogether out of our 
contemplation, or they would, by competing among them- 
selves for the amount of business, bring down its rate to so 
low a point that the remuneration of each and every one of 
this class would be practically equal to what he could earn for 
himself in other avocations, either, for example, as an inde- 
^lendent laborer, working in his own shop, or on his own bit 
of land, or, as a wage laborer, hired by some one of his own 
intellectual class, no more qualified than himself, in any way, 
to conduct business. This, which we might call the "no- 
profits " stage of industrial society, corresponds closely to 
the " no-rent " stage in the cultivation of the soil. The per- 



PROFITS. 351 

sons remaining in the conduct of business would, indeed, earn 
their subsistence, but no more, and economically it would 
make no difference to them whether they did this, as employ- 
ers or employed. 

281. — In fact, however, the qualifications for the conduct 
of business are not equal throughout all of a sufficiently 
numerous class; on the contrary, the range of ability is almost 
world-wide. First, we have those rarely-gifted persons who, 
in common phrase, seem to turn everything they touch into 
gold; whose commercial dealings have the air of magic, who 
have such power of insight as almost to seem to have the 
power of foresight; who are so resolute and firm in temper 
that apprehensions and alarms and repeated shocks of disaster 
never cause them to relax their hold or change their course; 
who have such command over men that all with whom they 
have to do acquire vigor from the contact and work for them 
as they would not, perhaps could not, work for others, just as 
great captains inspire their armies with a confidence which 
alone goes far to make them invincible. 

Next below, though far below, we have that much larger 
class of men of business, of a high order of talent, though 
without genius or anything savoring of magic, whose unquali- 
fied success is easily comprehended, even if it cannot be 
imitated, by their less gifted competitors: men of natural 
mastery, sagacious, prompt and resolute in their avocations. 
Then we have the men who, on the whole, do well, or pretty 
well, in business; men who enjoy a harmonious union of all 
the qualities of the entrepreneur, though only in moderate 
degree, or in whom some defect, mental or moral, impairs a 
higher order of abilities; men who are never masters of their 
fortunes, are never beyond the imminence of disaster, and yet, 
by care and pains and diligence, win no small profits from their 
business, and, if frugality be added to their other virtues, 
accumulate in time large estates. Lower down in the indus- 
trial order are a multitude of men who are found in the con- 
trol of business enterprises, for no very good reason that can 
be seen by those who know them; men of checkered fortunes, 
sometimes doing well, but more often ill ; some of them, per- 



253 POLITICAL ECONOMY. 

liaj^s, -filling a place that would not otherwise be filled, but, 
more commonly, in business because they have forced them- 
selves into it under a mistaken idea of their own abilities, 
perhajjs encouraged by the i3artiality of friends who have 
been willing to place in their hands the agencies of production, 
or entrust them with commercial or banking caf)ital. The 
industrial careers of these men are not peculiarly happy, 
though the degree in which they suffer from the constant 
imminence of loss, perhaps of bankruptcy, is very much a matter 
of tcmi^erament. Some take it extremely hard, and when 
they fall make no effort to rise again; others are irrepressible 
as Harlequin, jumping up, alert as ever, after being appar- 
ently hanged, drawn and quartered by the common execu- 
tioner. 

282. The No-Profits Class of Entrepreneurs. — Now, in 
my view of the question of profits, we find, in the lower stratum 
of the industrial order thus rudely and hastily sketched, a 
" no-profits " class of entrepreneurs. Notwithstanding all the 
magnificent premiums of business success, the men of real 
business power are not so many but that no small part of the 
posts of industry and trade are filled by men inadequately 
qualified, and who, consequently, have a very checkered career 
and realize for themselves, taking their whole lives together, 
a very meagre compensation, so meagre that, for purposes of 
scientific reasoning, we may treat it as constituting no profits 
at all. Live they do, partly by legitimate tell upon the 
business that passes through their hands, partly at the cost of 
their creditors with whom they make frequent compositions, 
partly at the expense of their friends, or at the sacrifice of inher- 
ited means. This bare subsistence, obtained through so much 
of hard work, of anxiety, and often of humiliation, we regard 
as that minimum which, in economics, we can treat an nil. 
From this low jioint u})wards, we measure profits. 

283. Profits do not form a part of the Price of Manufac- 
tured Products.— If this view of the employing class be cor- 
rectly taken, and who will say that it does not fairly represent 
the facts of modern iiidustrial society ? it is seen at once that, 
under jierfect competition, that is, if all the conditions of a 



PROFITS. 253 

good market be supplied, manufacturing profits, for instance, 
are not obtained through any deduction from the wages of 
mechanical labor, any more than rent is obtained through any 
deduction from the wages of agricultural labor ; and that, 
secondly, manufacturing profits do not constitute a part of the 
price of manufactured goods, any more than rent constitutes 
a part of the price of agricultural produce. All profits are 
drawn from a body of wealth which is created* by the excejj- 
tional abilities (or opportunities) of those employers who 
receive profits, measured from the level of those employers 
who receive no profits, just as all rents are drawn from a body 
of wealth, which is created by the exceptional fertility (or 
facilities for transportation of produce) of the rent-lands, 
measured from the level of the no-rent lands. 

The price of manufactured goods of any particular descrip- 
tion is determined by the cost of production of that portion 
of the supply which is produced at the greatest disadvantage 
(par. 119.) If the demand for such goods is so great as to 
require a certain amount to be produced under the manage- 
ment and control of persons whose efficiency in organizing 
and supervising the forces of labor and capital is small, the 
cost of production of that portion of the stock will be large, 
and the price will be correspondingly high, yet, high as it is, 
it will not be high enough to yield to the entrepreneurs of this 
grade any more than that scant and difficult subsistence which 
we have taken as the no-j)rofits line. The price at which these 
goods are to be sold, however, will determine the price of the 
whole supply, since, in any one market, at any one time, there 
is but one price for different portions of the same commodity. 
Hence, whatever the cost of production of those portions of the 
supply which are produced by entrepreneurs of a higher indus- 
trial grade, they will command the same price as those portions 
which are produced at the greatest disadvantage. The differ- 
ence, so measured, will go as profits to each individual entrepre- 

* I am gratified to find, that Prof. Alfred Marshall supports this view. 
" The earnings of management of a manufacturer represent the value of 
the addition which his work makes to the total produce of capital and 
industry." 



354 POLITICAL ECONOMY. 

neiir, according to his own success in production, whether that 
be due to exceptional abilities, or to excejjtional opportunities, 
or to both, in one proportion or another. 

284. Profits are not Subtracted from Wages.— Do profits, 
then, come out of wages ? Not at all. The entrepreneurs of 
the lowest industrial grade — the no-profits employers, as we 
have called them — must pay wages sufficient to hire laborers 
to work under their direction. These wao^es constitute an 
essential part of the cost, to the employer, of the production of 
the goods. The fact that these wages are so high is the rea- 
son why the employers are unable (their skill and power in 
organizing and energizing labor and capital being no greater 
tlian they are), to realize any profits for themselves. 

The entrepreneurs of the higher industrial grades will pay 
the same wages to their laborers. They will clearly pay no less. 
They need pay no more ;* why should they ? Why, in equity 
or in economics, should a laborer who works for a strong, pru- 
dent and skillful master, receive higher wages than one whose 
fortune it is to work for a vacillating, jjurblind, inefficient, or 
reckless entrepreneur ? The one laborer is as efficient as the 
other, and works as hard. The difference in production, which, 
in the one case^ allows rent to be paid, and in the other enables 
the entrepreneur to secure a iDrofit, is due to no superiority in 
the quality of the labor or the capital era* loyed over that of 
the labor and the capital employed where no rents or no 
profits are realized. In the one case it is due to the superior 
fertility of the land, or its greater facilities for "Jc; transpor- 
tation of produce ; in the other, to the superior al ilities or 
opportunities of him who conducts industry. 

In the latter case, the entrepreneur, paying the wages at the 
same rate to his laborers, and interest, at the same rate, to the 
capitalist, for so much as he has to borrow, and selling his goods, 

* On the assumption, be it remembered, of perfect competition. As 
a matter of fact, tiie more successful employers do, in an important 
sense, pay liigiier wages, inasmuch as the greater steadiness of employ- 
ment, which characterizes a strong and rich Louse, in comparison willi 
a weak and poor one, amounts vhtually to an increase of wages, taking 
long periods together. 



PROFITS. 255 

so far as they are of equal quality, at the same price as the entre- 
jDreneur who makes no j^rofits, is yet able by his careful study of 
the sources of his materials ; by his comprehension of the 
demands of the market ; by his steadiness and self-control in 
the presence of temptations to extravagance or wild ventures, 
on the one hand, or to a weak compliance with importunate 
requests, or an undue facility in dealing with individuals, on 
the other hand ; by his organizing force and administrative 
ability; by his energy, economy, and prudence, to accumulate 
a clear surplus, after all obligations are discharged, which 
surplus is called pi-ofits, just as the cultivator of soils of the 
better class has a surplus left in his hands, after paying wages 
for labor, and interest for capital emj^loyed, which surplus, 
called rent, goes to the owner of the soil, as such, be he the 
actual cultivator, or a different person. 

285. The No-proflts Entrepreneur^ — A failure to dis- 
cern the true relations of profits to wages has led to a very 
mistaken appreciation of the interests of the community, and 
especially of the laboring classes, regarding the employers of 
labor. While the large profits of the successful entrepreneur 
have been the subject of much jealousy, and almost uniformly 
excite in the minds of the unthinking the sense of personal 
wrong, although, as we have seen, they are, in economical 
theory, not obtained through any deduction from wages, nor do 
they add anything to the price of manufactured goods, there 
is an entire lack of jealousy exhibited towards the unsuccessful 
man of business, who often receives a great deal of sympathy 
from the laboring class. Many writers even deplore, on econ- 
omical grounds, the modern tendency to the concentration of 
productive industry in a compai'atively few hands. 

So far as the sympathy extended towards the unsuccessful 
man of business is of a personal nature, flownng from a kindly 
disposition towards the unfortunate, it is, of course, very 
amiable, though we have nothing to do here with feelings of 
that kind. But there is reason to believe that this sentiment 
is not wholly of a good origin, but is quite as largely produced 
by a misapprehension of economical relations. The laborers 
appreciate, in some degree, the cares under which the unsuc- 



256 POLITICAL ECONOMY. 

cessful employer labors, the anxieties from which he suffers, 
the humiliation into which he is occasionally plunged. They 
know he has a pretty poor time of it on the whole, and they 
are not envious of him; on the contrary, they use his hard lot 
to sharpen their envy of the man who reaps large profits from 
the conduct of business and the employment of labor. They 
compare the rich rewards of tlie one, who, perhaps, in time, 
becomes worth his millions, Avith the meagre recompense of 
the other, who, at the end of a long life of labor, has little to 
show for it all, and little to leave to his children; and the com- 
parison tends to heighten the feeling of loss and of wrong with 
which the gains of the former are contemplated. 

If, however, we have rightly indicated the source of profits, 
not only is the unsuccessful entrepreneur deserving of no 
special economical sympathy on the part of the laboring class, 
but his conduct of business, his control of labor-force and 
capital-force is at a great cost to the laboring class, as forming 
a part of the general community. 

We saw that rents were measured upward from the produc- 
tive level of no-rent land. If, therefore, that level is lowered, 
rents are, by that fact, raised. If, for example, the lowest 
grades of soil cultivated for the supply of any given market 
will yield twenty bushels of wheat, per acre, on the ajiplication 
of a certain amount of labor and capital, lands which, with the 
same application of labor and capital produce twenty-four 
bushels, will bear four bushels rent; but should cultivation be 
pushed downward, through the increase of population, or 
through the inundation of a portion of tlie cultivated fields of 
the country, so that lands producing, under the same condi- 
tions, only sixteen bushels, come to be sown in wheat, the rent 
of the twenty-four bushel tract wall at once rise to eight 
bushels. The rent will be doubled, although the land now 
])roduces no more food than before. 

Similarly, profits are measured upwards from the level of 
the no-profits class of erajjloycrs; and any cause which brings 
incompetent persons into the conduct of business, or keeps 
them there, against the natural tendency of trade to throAV 
them out, increases the profits of the successful entrepreneur. 



PROFITS. 257 

by enhancing the cost of production and, consequently, the 
price of that portion of the supply which is produced at the 
greatest disadvantage. This enhancement of jDrice is at the 
expense of all who consume the goods so produced; the labor- 
ing class equally with others, in theory; probably in fact more 
than any other, on account of their limited ability to look out 
for their own interests in retail trade. (See par. 1.32.) 

286. Many causes help to swell the proportion of incompe- 
tent employers of labor. 

"Shilly-shally laws relating to insolvency do this; bad 
money does this; truck does this. Each of these causes enables 
men to escape the consequences of incompetency, and to hang 
miserably on to business, where they are an obstruction and a 
nuisance. Slavery, in like manner, enables men to control 
labor and direct production, who never would become, on an 
equal scale, the employers of free labor; and it is not more to 
the inefficiency of the slave than to the incompetency of the 
master, that the unproductiveness of chattel labor is due. 

" The lower the industrial quality of free labor, the more 
ignorant and inert the individual laborer, the lower may be 
the industrial quality of the men who can just sustain them- 
selves in the position of employers. Men become the employ- 
ers of cheap labor who would never become the employers of 
dear labor, and who ought not to be the employers of any sort 
of labor. The more active becomes the competition among 
the wages class, the more prompt their resort to market, the 
more persistent their demand for every possible increase of 
remuneration, the greater will be the pressure brought to bear 
upon such employers to drop out of the place into which they 
have crowded themselves at the cost of the general community, 
and where they have been able to maintain themselves only 
because the working classes have failed, through ignorance or 
inertia, to exact their full terms." ''- 

287. Co-operation: Getting rid of the Entrepreneur.— In 
the department of Production we described the function of the 
entrepreneur, the person who hires labor, on the one hand. 



* Walker: The Wages Questiou, 

17 



258 POLITICAL ECONOMY. 

and borrows capital on the other^ leasing land, in addition, 
or not, as the case may be, and, having thus come into pos- 
session of two or more of the prime agents of production, 
initiates industrial operations according to his own plans, and 
with a view to his own economical benefit. Coming down to 
the department of Distribution, we have, but just now, 
enquired how the contemplated benefit is secured by the 
entrepreneur, and what are the limits of that benefit, which we 
term profits. 

It has been said, in the course of this discussion, that this 
benefit obtained by the entrepreneur, his profits, has been the 
object of not a little jealousy and envy on the part of the labor- 
ers and capitalists to whom he has paid wages or interest. 
These wages and this interest the recipients would be glad to 
see increased by some addition derived from the source from 
which the entrepreneur obtains his profits. This could only 
be done in one of two ways; the first, by robbery, whether 
under the forms of law or by illegal violence; the second, by 
the laborers and the capitalists combining to perform the entre- 
preneur's work in production, and thereby becoming entitled, 
or perhaps we had better say enabled, to claim his share of 
the product in distribution. The latter would be perfectly 
legitimate, if practicable. The laborers and the capitalists may 
well and properly unite to do this if they can; the entrepre- 
neur, on his part, could have no jDOSsible reason for complaint 
Avere they to do it, on grounds either of political equity or 
political economy. Economically, there is no excuse for the 
existence of the entrepreneur except so far as he performs ser- 
vices to laborers and capitalists which they are not able to 
perform for themselves. Equitably, there could be no excuse 
for the entrepreneur receiving profits, in any degree, except as 
he performs such services. If, therefore, laborers and capi- 
talists can succeed in getting rid of the entrepreneur, they 
will accomplish an object very naturally and properly to be 
desired by them; and the persons now serving society in that 
capacity will have to find a new place in the industrial order. 

288. Organized and systematic efforts to get rid of the 
entrepreneur have not been unknown. Among the many 



CO-OPERA TION. 259 

schemes for largely and rapidly improving the condition of 
the masses of the people, which had their birth in the period 
of social and political fermentation which we call the Revolu- 
tion of 1848, none had fairer promise of substantial results 
than that known by the name of Co-operation. 

Generically, co-operation is a term of wide application, and, 
in its use in political economy, may exj)ress the union of in- 
dustrial agents in production, upon any terms and under any 
system of organization. Since the period referred to, however, 
the term has come to have a very limited signification, confined 
to an industrial organization from which the entrepreneur is 
excluded, and, under which the pi'oduct of industry is again to 
be divided into three principal shares, instead of four as under 
the entrepreneur system. I here only indicate the place which 
co7operation occupies in the scheme of Distribution, postpon- 
ing the discussion of the scheme to Part VI. 



CHAPTER V. 

WAGES. 

289. Definition of "Wages. — We have seen three shares cut 
off the product of industry. Of the four principal parts* into 
which that product is divided, under the entrepreneur organi- 
zation, as existing almost universally in England, and as i-apidly 
extending in the United States, on the continent of Europe, 
and in all progressive countries, there remains but one to be 
treated, Wages, the remuneration of hired labor. 

Before seeking the law which governs wages, there are two 
distinctions which require to be drawn very clearly, distinc- 
tions which the reader will need to hold strongly in mind 
through the whole course of our future discussion, the dis- 
tinction, viz., between real and nominal wages, and that be- 
tween the real and the nominal cost of labor. 

* Certain minor shares in distribution will be treated in the next 
chapter. For the purposes of the present discussion they may safely be 
disregarded. 



260 POLITICAL ECONOMY. 

290. Real and Nominal Wages.— Real wages are the re- 
muneration of the hired laborer as reckoned in the necessaries, 
comforts and luxuries of life. 

Real wages may differ widely, even when nominal wages are 
of the same amount, by reason of : 

(«) Variations in the purchase power of money. The possible 
range of this cause is sufficiently shown in what has been said 
of money in a preceding chapter. 

(J) Varieties in the form of payment, as when the board of 
the laborer, the rent of a cottage, the privilege of grazing 
a cow, allowances of certain quantities of food, drink or fuel, 
the right to take flour at miller's prices, one or more of these, 
are added to the money wages of the laborer. Such forms of 
payment are not of much importance throughout the United 
States, generally, at the present time; but in many Euroi^ean 
countries they conatitute elements which can not be over- 
looked in discussing the question of comparative wages. In 
England, a series of acts of Parliament, extending over four 
hundred years, have successively restricted the right of the 
employer to pay wages in aught but the coin of the realm. 

(c) The greater opportunities in some avocations than in 
others for extra earnings, by the laborer himself or l)y the 
members of his family. Thus, Prof. Senior says: " the earnings 
of the wife and children of many a Manchester weaver 
exceed or equal those of himself. Those of the wife and chil- 
dren of an agricultural laborer, or of a carpenter or coal- 
heaver, are generally unimportant." The true unit in the com- 
parison of wages is evidently the family. 

291. {(T) The greater regularity of employment in some 
avocations than others. Varying i-egularity of eraplo3'ment may 
be due to (1) the nature of the individual avocation, (2) the force 
of the seasons, (3) social causes, (4) industrial causes, of a gen- 
eral character, like strikes, panics, and so-called "hard times." 

In illustration of the foregoing causes, we have the widely 
varying rates of agricultural wages from one season to 
another, being often, e. g., more than twice as great in the 
third as in the first quarter of the year. This is due to both 
of the first two causes adduced. It is not alone the difference 



WAGES. 261 

of the seasons which makes agricultural wages so irregular; in 
part, also, it is the nature of the operations involved. After 
the seed has been planted, time must be given it to grow, and 
this would be so, were there no winter. So in the fisheries, it 
is not alone the stress of weather which obliges the laborer to 
lie idle during portions of the year, but, in part, the reproduc- 
tive necessities of the fish. In other avocations it is the force 
of the seasons alone which makes employment irregular, as, 
for example, in the brickmaking, quarrying, carpentering, 
house-painting, and other trades. 

Among social causes affecting the regularity of employ- 
ment, as between country and country, may be mentioned the 
observance of festivals and religious rites, which among 
some peoples occupy a hundred and more days in the year. 

(e) The longer duration of the labor power in some avoca- 
tions and in some countries, than in others. 

Thus, Dr. Neison has shown that the mean mortality in Eng- 
land between 25 and 65 years of age, is, in the clerical profession 
1.12 percent.; in the legal, 1.57; in the medical, 1.81. In domes- 
tic service, the mortality among gardeners, is but 93 per cent.; 
among grooms, 1.26; among coachmen, 1.84. Of the several 
branches of manufacture, paper shows a mean mortality of 
1.45; tin, 1.61; iron, 1.75; glass, 1.83; lead, 2.24; earthenware, 
2.57. Among the different kinds of mining, iron shows a 
mean mortality of 1.80; tin, 1.99; lead, 2.50; copper, 3.17. 

Dr. Edward Jarvis has shown that on the average, an Irish- 
man who has reached the age of 20, has 28.88 years to live; a 
Frenchman, 32.84; an Englishman, 35.55; a Norwegian, 39.61. 

It is evident that if two persons begin to labor productively 
at the same period of life and continue at work until death 
at the same nominal rate of wages, that one receives the 
higher real remuneration who lives the longer, inasmuch as 
the cost of his maintenance during the first unproductive 
years of life, must, in any philosophical view of the subject, 
be charged upon his wages during his period of labor. 

292. Nominal and Real Cost of Labor. — Another distinc- 
tion which requires to be observed is that between wages and 
the cost of labor. 



363 POLITICAL ECOAWMY. 

In treating wages as high or low, we occupy the laborer's 
point of view. In treating the cost of labor as high or low, we 
occupy the point of view of the employer. 

Wages are high or low, according to the abundance or the 
scantiness of the necessaries, comforts and luxuries which the 
laborer can command as the remuneration for his services. 
The cost of labor is high or low, according as the employer 
gets an ample or a scanty return for the wages he pays the 
laborer. 

It is possible that an employer may pay high wages, and yet 
the cost of labor to him may prove to be low, by reason of the 
laborer's superior efficiency. On the other hand, the employer 
may pay wages on which the laborer can only live most miser- 
ably, and yet the employer be greatly straitened to get back 
these wages in the value of his product, so poor and wasteful 
may be the services rendered. 

In Part II. we have explained at great length the causes 
which affect the laborer's efficiency. 

It is probably true that, as a rule, the highest paid labor is 
that which costs the employer least. This is evidenced by the 
two facts that, generally speaking, employers, when they 
reduce their force, discharge their lowest paid laborers first; 
and that, generally speaking, it is the countries where the 
lowest real wages are paid which feel the necessity of imposing 
commercial restrictions to keep out the products of others. 
Thus, India, where the cotton spinner gets only 20 pence a 
week, is flooded by the cottons of England, where the spinner 
receives 20 shillings; and Russia, where the laborer in iron 
works receives but three roubles a week, has to protect herself, 
or thinks she must do so, against the iron of England, where 
the workman receives four or five times as much. 

293. Relation of Wages to the Other Shares of the Pro- 
duct of Industry. — It has not been by accident, or Avhim, or 
from any notion respecting the comparative dignity of the 
several claimants to the product of industry, that rents, inter- 
est, and profits have been discussed before wages. 

This order has been followed for a positive reason, which is 
that, in the theory of distribution here proposed, wages equal 



WAGES. 263 

the product of industry minus the three parts already deter- 
mined in their nature and amount. . In this view, the laboring 
class receive all they help to produce, subject to deduction 
on the three several accounts mentioned. 

294. Rent Deducted. — First, rent is to be deducted. On the 
lowest grade of lands there is no rent. On the more produc- 
tive soils rent, at its economical maximum, equals the excess 
of produce after the cost of cultivating the no-rent soils has 
been paid. This rent, as we have seen, does not affect the 
price of agricultural produce, and does not come out of the 
remuneration of the agricultural laborer. Should it be remit- 
ted by the landlord to the cultivating farmer, no economical 
force would carry that remission either towards a reduction of 
the price of the loaf of bread, or towards an enhancement of 
the wages of the farm-hand. It would be, in the first instance, 
and would remain to the end, a pure gratuity to the entrepre- 
neur-farmer. 

We thus see that the first deduction to be made from the 
product of industry is of a perfectly definite nature, and that, 
on the assumption of active competition on both sides, the 
amount of that deduction is susceptible of arithmetical com- 
jDUtation. Rent must come out before the question of wages 
is considered. The laborer cannot get it, or any part of it, by 
any economical means. It must go to the land-owner, unless 
it be confiscated by the State, or ravished away by violence. 

295. Interest Deducted.— Secondly, from the product of 
industry must be deducted a remuneration for the use of capi- 
tal. That remuneration must be high enough to induce those 
who have produced wealth to save it and store it up, in the 
place of consuming it immediately for the gratification of per- 
sonal appetites or tastes. This may imply, in one state of 
society, an annual rate of interest of eight per cent.; in 
another of five; in another, of three. The only reason, indus- 
trially speaking, for interest being paid at all is that 
by the use of capital production may be enhanced; 
and the interest so paid is only a part, often — such 
is the force of competition among the would-be lenders of 
capital — only a very small part of the excess of product so 



264 POLITICAL ECONOMY. 

generated. Since tlie product remaining after the payment of 
interest is always, in theory, equal to wliat would have been 
the product, had interest not been paid (that is, had the cap- 
ital for the use of which interest is paid, not been em- 
ployed), and since' in fact, the product so remaining is always 
greater, in general, vastly greater, often inconceivably 
greater, than the product would otherwise have been, that 
party to the distribution of wealth whose claims are residual, 
that is, which takes all that no other claimant carries away, is 
benefited by every payment of interest on account of capital 
used in the production of wealth. Indeed, as high interest, 
under free competition, shows that the contribution made to 
production through each new accession of capital is very large, 
it may be said that the residual claimant upon the product 
of industry derives a greater relative benefit through the 
employment of capital where a high rate than where a low 
rate of interest is paid.* 

296. Profits Deducted. — The third and last deduction to 
be made from the product of industry before the laborer 
becomes entitled thereto, is what we have called profits, the 
remuneration of the entrepreneur, the man of business, the 
captain of industr}-, the merchant, manufacturer, or banker, 
who sets in motion the complicated machinery of modern pi-o- 
duction. 

From the importance assigned, in this work, to the entre- 
preneur function, the conclusion might be hastily drawn that 
production would be pi-imarily for his benefit, that he, if any 
one, would be the residual claimant upon the product; that, 
paying the capitalist, on one side, enough, under the name of 
interest, to secure the use of his capital, and paying the 
laborer, on the other side, enough, under the name of wages, 
to secure his services, this man of business, captain of indus- 

* In par. 361 it was shown that, instead of a high rate of interest being a 
hardship, the real hardship lies in the scarcity of capital; that a high 
rale of interest is the efficient means of removing that hardship by 
promoting the rapid increase of the capital so much needed by the com- 
munity. In a word, that a high rate of interest, instead of being the 
cause of an evil, is its proper and sole cure. 



JVAGES. 265 

try, inercliant, manufacturer, or banker, would retain as his 
own all that remains. And so, indeed, in any individual 
transaction he does, owing to the force of contract, just as 
the farmer, under a lease, pays the owner of the soil no more 
in years when the yield is exceptionally large, and no less in 
years when the cro^js are short. If, however, we have correctly 
indicated (pars. 278-283) the source of the entrepreneur's 
profits, they are of the same nature as rent. As there are no- 
rent lands, so there is a class of employers who derive from 
the business they conduct a bare subsistence, at the cost of 
much anxiety, and perhaps also of discredit, many of them 
living mainly at the expense of their creditors. These we 
call the no-profits employers. From this j^oint, where jDrofits, 
if any, are so small and so hardly earned that they may, for 
scientific purposes, be disregarded, upwards through many 
grades, we have emi^loyers who derive moderate profits, lib- 
eral profits, grand profits, monumental profits aggregating in 
a life time colossal fortunes, according to tlie degrees in which 
they bring courage, prudence, foresight, frugality, and 
authority over men, to the organization and conduct of busi- 
ness enterprises. If I am right and not wrong in this 
view of the nature of the entrepreneur's function and of the 
source of his profits, those j^rofits would, under full and free 
competition, not form a part of the price of commodities 
(price being determined by tlie cost of production under the 
most disadvantageous conditions, i.e., in this case, production 
by the no-profits employers); while no economical means 
whatever would sufiice to carry any portion of profits to 
wages, even were employers forbidden by law to receive prof- 
its. In other words, these profits consist wholly of wealth 
created by the individual employers themselves, over and 
above the wealth which would have been produced, in similar 
industrial enterprises, by the same labor-force and capital- 
force under the control of employers of a lower grade of eco- 
nomical efficiency. 

297. The Laborer, the Residual Claimant to the Product 
of Industry.— These three shares being cut off the product of 
industry, the whole i-emainijig body of wealth daily or annu- 



260 POLITICAL ECONOMY. 

ally created, is the j^roperty of the laboring class * ; their 
■wages, or the remuneration of their services. So far as, by 
their energy in work, their economy in the use of materials, 
or their care in dealing with the finished product, the value of 
that product is increased, that increase goes to them by purely 
natural laws, provided only competition be full and free. 
Every invention in mechanics, every discovery in the chemi- 
cal art, no matter by whom made, inures directly and imme- 
diately to their benefit, excej^t so far as a limited monopol}'- 
may be created by law, for the encouragement of invention 
and discovery. 

Unless by their own neglect of their own interests, or 
through inequitable laws, or social customs having the force 
of law, no other party can enter to make any claim on the 
product of industry,! nor can any one of the three j^arties 
already indicated, carry away anything in excess of its nor- 
mal share, as hereinbefore defined. 

* This is substantially the position taken by the lamented Prof. 
Stanley Jevons, of University College, London, who stales that " the 
wages of a working man are ultimately coincident with what he pro- 
duces, after the deduction of rent, taxes, and the interest of capital." 
In this matter of Wages, Prof. Jevons emphatically repudiates the doc- 
trine generally accepted in his own country, saying : " Our English 
Economists have been living in a fool's paradise," and fraiikl_y ranges 
liimself with the French economists, "from Condillnc, Bandeau, and 
Lc Trosne, through J. B. Say, DeStutt Tracy, Storch, and others, down 
to Bastiat and CourcelleSeueuil." 

" The truth," he declares, " is with the French School, and the 
sooner we recognize the fact, the better it will ])e for all the world, 
except, perhaps, the few writers who are too far committed to the old 
erroneous doctrines to allow of renunciation." [Preface to the Second 
Edition of his Theory of Political Economy, 1880.] 

I may remark that when, in 1874, I had occasion to trace the genesis 
and the literary history of the Wage Fund Theor}' (Sec North American 
Review, Januar}', 1875), I did not tind a single French economist 
infected by the pernicious doctrine whicli long held complete sway 
across the Channel. 

f With the exception, still, of the State and of the speculator, whom it 
has seemed best for clearness of view to remove altogether from the 
present discussion, and whose shares in the distribution of the product of 
industry will be elsewhere considered. 



WAGES. 267 

298. The English Doctrine of Wages.— The view here 
taken of the Distribution of Wealth, under the entrepreneur 
organization of industry, differs widely from that held by 
the English economists, except as respects the single share of 
the landowner — Rent. According to those writers, the capi- 
talist-employer is the residual claimant upon the product of 
industry. DeQuincy summed up the Ricardian doctrine in 
saying: "Profits are the leavings of Wages."* From the entire 
l^roduct of the exertions and sacrifices of the industrial 
community, there is cut off Rent, as determined by the 
Ricardian formula ; next the laborer's share is ascertained in 
accordance with the Wage Fund,f the amount possibly to be 
paid in this way being irrespective alike of the number and 
of the industrial quality of the laboring class ; the rest belongs 
to the capitalist-employer, as his own profits, so-called, con- 
sisting of two portions, one, due to the abstinence of the 
owner of capital, as such ; the other due to the present, per- 
sonal exertions of the employer, as such. 

By this rule of distribution, no gain in the efficiency of the 
individual laborer, whether taking the direction of greater 
energy or of greater economy; no mechanical invention, no 
chemical discovery, however much the capability of production 
may be increased thereby, can profit the laborer anything, 
except as it first enhances the profits of the employing class, 
and thereby adds to the capital of the wage fund, to be there- 
after expended in purchasing labor. 

* "There is no other way," said Ricardo, "of keeping profits up, 
but by keeping wages down." "Profits," said Mr. McCulloch, "vary 
inversely as wages ; that is, they fall wheil wages rise, and rise when 
wages fall." 

In both tliese statements, the word profits is used to include interest, 
as elsewhere explained. 

f A discussion of the Wage Fund Theory will be found in Part VI. 
A few years ago, I should not have presumed to pass by this point with- 
out undertaking a formal refutation of this theory which, till recently, 
liad complete possession of the English Economists. The fact that, 
though now generally abandoned, it still holds its place in so many 
treatises on the shelves of our libraries, some of which are even now 
used as text books in our Colleges, appears to require some uotice to be 
taken of it. 



268 POLITICAL ECONOMY. 

In opposition to this view, I hold that, notwithstanding the 
formal attitude of the laboring class in industry, as hu-ed by 
the entrej)reneur class and working for stipulated wages, the nor- 
mal ojDeration of the laws of exchange is to make the former, in 
effect, the owners of the whole product, subject to the require- 
ment of paying the definite sums charged against the product 
on the three several accounts of rent, interest and j^rofits. 

299. What Will They do With it?— This position of the 
laboring class would seem to be a not ineligible one, conceding 
that the exigencies of modern production require the mainte- 
nance of the entrepreneur class. 

We have seen what is the best the laboring class can, in theory, 
do for themselves, under the existing organization of industry; 
what is the most they can claim for their services. Let us now 
enquire, what, in fact, this class do for themselves in this 
respect; and if they fall short of realizing then- full share of the 
j^roduct of industry, to what causes the failure is to be attri" 
buted. 

The laboring class may do themselves an economical injury 
in either or both of two ways; first, through excessive repro- 
duction, sexually, leading to overpopulation, involving the 
necessity of cultivating poorer and poorer soils, with the result 
of continually diminishing per-capita production ; secondly, 
through a weak, spasmodic, or unintelligent competition with 
the employing class. 

The consideration of the former of these causes of econ- 
omical injury will be postponed till we reach the department 
of Consumption. The latter will form the subject of the 
following ]xaragraphs, 

300. Imperfect Competition. — A total failure of competi- 
tion is, of course, impossible. No class of laborers will be 
found so stolid and inert as to make no exertions whatever to 
change a worse for a better condition, economically. The 
impulse to buy in the cheaper and to sell in the dearer market 
will, in some measure, actuate every body of laborers. Yet 
tlu! degree in which that motive is effectual will be found to 
vary widely as between men of different climes, and of dif- 
ferent races. Compare the New Englander with the East 



WAGES. 269 

Indian. The former, inquisitive, alert, aggressive, almost des- 
titute of attachment to locality, quick to change his avocation, 
if a profit shall appear, and so gifted with mechanical insight 
and aptitude as to acquire the rudiments of any art in an aston- 
ishingly short time; occupying a country where the transmission 
of intelligence is incessant, and where the transportation of 
passengers and freight reaches the maximum of ease, security 
and cheapness; enjoying the advantage of a wide margin of 
living, and with no inconsiderable savings laid up from the 
liberal earnings of former years, is not likely to remain long 
ignorant of opportunities for improving his industrial condi- 
tions, whether through change of place or avocation, or likely 
long to allow such opportunities to remain unimproved. 
" The full-blooded American," says M. Chevalier, " has this in 
common with the Tartar, that he is encamped, not established, 
on the soil he treads upon." We get a measure of this freedom 
of individual movement in the census statistics, by which it 
appears that in 1880 nine and a half millions of the native 
population were living in States other than those of their 
birth. 

301. The Immobilityof Labor.— On the other hand the East 
Indian, bound in fetters of caste, of superstition, of ignorance 
and poverty, occupying a country vast portions of which are 
traversed only by bullock-paths, abides in his lot in spite of 
wretchedness and famine, as though rooted in the soil itself. 

But we have not to go as far away as India, to find instances 
of a high degree of immobility in the population, in the face 
of strong and urgent reasons for migration. A century ago 
Adam Smith wrote : 

*' Eighteen pence a day may be reckoned the common price 
of labor in London and its neighborhood. At a few miles' 
distance, it falls to fourteen and fifteen pence. Ten pence 
may be reckoned its price in Edinburgh and its neighborhood. 
At a few miles' distance it falls to eight pence, the usual price 
of common labor through the greater part of the low country 
of Scotland, where it varies a good deal less than in England. 
Such a difference of prices, lohicJi it seems is not always suff- 
cient to transport a man from one parish to another^ loouldnec- 



270 POLITICAL ECONOMY. 

essarily occasion so great a iTansportation of the most bulky 
commodities, not only from one point to another, but from one 
end of the Jcingdom, almost from one end of the world, to 
another, as tcotdd soon reduce them more nearly to a leveV 
So great did the resistance to the flow of labor appear to the 
eye of this great economist, that he declared man to be " of 
all sorts of luggage the most difficult to be transj)orted." 

302. It might be supj)osed that the increase during the 
century in the facilities for transportation and for the diffu- 
sion of information would have done much to remove the 
obstructions which, in Adam Smith's day, retarded the move- 
ment of labor to its market ; but the force of ignorance, fear 
and poverty is not so easily broken. Prof. Fawcett in his 
Political Economy writes: " During the winter months, an 
ordinary agricultural laborer in Yorkshire earns thirteen shil- 
lings a week; the wages of a Wiltshire or Dorsetshire laborer, 
doing the same kind of work, and working a similar number 
of hours, are only nine shillings a week. This great difference 
in wages is not counterbalanced by other considerations. 
Living is not more exi^ensive in Yorkshire than in Dorset- 
shire, and the Dorsetshire laborer does not enjoy any particular 
advantages or privileges which are denied to the Yorkshire 
laborer," 

Instances without number might be cited,* showing, to the 
astonishment of every American reader, the jjractical immo- 
bility of the agricultural population of England in the past, 
and in this respect, England may be taken as fairly represent- 
ing the actual world about which the economist reasons, being 
in the mean between the people of North America and Aus- 
tralia, on the one hand, and those of Asia, on the other. 

303. Change of Occixpation. — So much for the freedom of 
movement from jilace to place, which is needed to meet tlie 
requirements of industrial competition. Of the freedom of 
movement from one avocation to another, which may be 
required for the same end, an even less favorable account may 
be triven. An American will find it difticult to conceive how 



*Thc Immobility of Labor is discussed far more at length than our 
prescut limits will permit in Cluipter II. of The Wages Question. 



MOBILITY OF YOUTHFUL LABOR. 271 

glow and painful is the process by which an overcrowded 
avocation is depleted or a growing industry reinforced, in any 
of the States of Europe. 

In his last and greatest work,* Prof. Cairnes sought to reach 
a measure of the rate of this movement in England. His 
result was substantially this: that only loss by death or disa- 
bility could be relied upon to relieve the labor market in any 
branch of industry which was overdone, and that the sole 
" disposable fund " for supplying new laborers to new or grow- 
ing branches of industry was to be found in the body of per- 
sons each year " coming of age," industrially speaking. It 
would be easy to show that the " play " thus given to the 
labor market is far within the limits of those great oscillations 
of industry which labor must meet, fully and promptly, or 
suffer because it can not meet them. Moreover it is very 
doubtful whether Prof. Cairnes does not overrate this dispos- 
able labor fund. 

So far from the members of the rising generation being per- 
fectly free to move into avocations other than those of their 
parents, we know that mill-owners are harassed by applications 
from their hands to take children into employment on 
almost any terms ; and that the consciences of employ- 
ers have required to be reinforced by the sternest pro- 
hibitions and penalties of the law to save infants of tender 
years f from factory labor, since the more miserable the 
parents' condition, the greater becomes the pressure on them 
to crowd their children somehow, somewhere, into service ; 
the scantier the remuneration of their present employment, 
the less becomes their ability to secure the better disposition 
of their offspring. Once in a mill, we know how little chance 
there is of the children afterwards taking up for themselves 
another way of life. 

We know, too, that in the agricultural districts of England, 
within recent years, gangs of children of all ages, from six- 

*" Some Leading Principles," &c. 

f Sir Arch. Alison states that the passage of the first labor act, of 1803, 
found children only three years old employed in the cotton factories of 
England. 



373 POLITICAL ECONOMY. 

teen down to ten or even five years, have been formed, and 
driven from farm to farm, and from parish to parish, to work 
all day under strange overseers, and to sleep at night in barns, 
huddled together without distinction of sex. 

We know that the system of public agricultural gangs 
required an act of Parliament to break it up, and we have the 
testimony of the commission of 18G7, that, in spite of the 
law, gangs are still formed in some parts of the kingdom. 

So late as 1870, children were employed in the brickyards 
of England, under strange task-masters, at three and a half 
years of age. Account is given of a boy weighing 52 pounds, 
carrying on his head a load of clay weighing 43 pounds, seven 
miles a day, and walking another seven to the place where his 
burden was to be assumed. 

Such instances show graphically the error of supposing 
that parents who are tied down hopelessly to an occupation 
which affords but the barest subsistence can freely disj)ose of 
their children to the best advantage among a large class of 
occupations. Especially when we consider that, in the devel- 
opment of modern industry, trades become highly localized, 
shall Ave see the practical fallacy of this assumption. Even if 
we suppose the parent to be advised of better opportunities 
opening in some trade prosecuted at a distance, yet, years 
before the boy or girl will be fit to send away from home, the 
chance of earning a few pence in the mill where the parent 
works, will almost irresistibly draw the child into the vortex. 
The truth is, that uiitil you secure mobility to adult labor you 
will fail to Ji I id it in tlte rising generation, ^i\iX that among 
an ignorant and degraded population four fifths, perhaps nine- 
tenths, of all children, by what may be called a moral neces- 
sity, follow the occupations of their parents, or those with 
whom fortune has placed them. 

304. The Industrial Effects of a Failiire of Competition.— 
If industrial movement may be thus tardy and limited, even 
amono- a people of Teutonic blood and enjoying free institu- 
tions, it becomes a matter of serious economical concern to 
enquire what are the industrial effects of a partial failure of 
competition. 



THE ECONOMICAL HARMONIES. - 273 

And, first, let us see just what it is that we look to comjseti- 
tion, when active and complete, to accomplish. 

We have defined competition to be the operation of indi- 
vidual self-interest among buyers and sellers. We saw that 
this implied that each man acts for himself, by himself, solely, in 
order to get the most he can from others, and to give the least 
he must, himself; and that competition is opposed in principle 
alike to combination, to custom, and to the influence of the 
sentiments of charity, gratitude, affection or patriotism, in 
exchange. 

- Now, this may seem a very unamiable thing, competition as 
thus defined; yet, rightly viewed, perfect conqjetition would 
be seen to be the order of the economical universe, as truly as 
gravity is the order of the physical universe, and to be not 
less harmonious and beneficent in its operation. 

If free and full, unqualified, unremitting competition could, 
be secured, the results would be more honorable to human 
nature, as well as practically more advantageous to the human 
race, in just the degree, and for the same reason, that absolute 
justice would be more advantageous and more honorable than 
partial justice patched up with charity. 

305. The Econoniical Harmonies. — When we say that 
through competition one reaches his best market, does this 
mean that in that way he does best for himself alone ? On 
the contrary, when one reaches his best market, ho does not 
only that which is best for himself, but that, also, which is 
best for others. He not only gets more than by resorting to any 
other mai-ket, but, in the very act of doing so, he gives more 
also. If in that market his service or commodity bears a 
higher price than elsewhere, that is of itself a proof that 
his service or commodity is there in greater demand, more 
needed, the subject of an intenser want, than elsewhere; and 
consequently, were he to resort elsewhere, he would not only 
receive less himself, but he would satisfy a lower want on 
the part of others, at the cost of leaving a higher want 
unsatisfied. 

306.— But the main oiSice of competition is to presexwe indi- 
viduals and. classes from destruction or industrial degradation 
18 



274 POLITICAL ECONOMY. 

through excessive burdens imposed by authority, through 
natural catastrojihes affecting the sources of livelihood, or 
through the gradual decay of commercial demand. Deal the 
heaviest bloAV you can with a hammer into a bin of barley, 
and you will not injure a single grain, though the hammer be 
buried to your hand, because every grain moves freely from its 
place, and the mass simply opens to receive the intruding sub- 
stance and closes around and above it. Lay one of the grains 
upon a rock, and a blow of a twentieth part the power will 
smash it into a j)aste. Let the stoutest ship that ever rode out 
a hundred gales have her bow lodged in the sands, and the 
oncoming waves of the first storm will break her up in a few 
hours, and scatter her planks and her cargo in coraj^lete Avreck 
along the shore. 

In the nature of the case, blows must fall, from time to 
time, upon every industrial community or class. Whether 
these be due to wars or failures of the harvest, or to confla- 
grations and floods, or to the shifting of commercial demand, 
or to vicious legislation, labor has an amj^le security against 
any deep and permanent injury, so long as its actual mobility 
is unimpaired. On whatever spot the blow may fall comi^lete 
freedom of movement, from place to place and from avoca- 
tion to avocation, will cause the original loss to be distributed 
over the industrial body, while the forces of rejDair and restor- 
ation will immediately set to work to make good what has 
been taken away. 

307. To Him That Hath Shall be Given. — Now this ten- 
dency to the diffusion of all benefits and the equalization of 
all burdens, and to the repair of all local injuries at the 
cxpenseof the vital powers of the whole industrial body, which 
is effected through the natural operation of the laws of trade 
under free and full competition, is properly the subject of 
admiring contemplation by social and ethical 2:)hilosophers. 
Frederic Bastiat has, in words of deathless eloquence, described 
this play of industrial forces, under the title of The Economic 
Harmonies. But the political economist who undertakes the 
explanation of the actual phenomena of tlie industrial world, is 
bound to note, not only that the assumption of full and free 



PERMANENCE OF ECONOMIC INJURIES. 275 

competition, which underlies this theory of the self -protecting 
power of labor, is wholly gratuitous, as applied to vast por- 
tions of the earth's population; but, also, that, when the 
mobility of labor becomes in a high degree imj^aired, the 
reparative and restorative forces do not act at all, but, on the 
contrary, a new and altogether antagonistic principle begins to 
operate, viz., the princijjle that " to him that hath shall be given, 
and from him that hath not shall be taken away even the little 
that he seemeth to have." Under the rule of this great economic 
as well as social law, industrial injuries once suffered tend to 
r.emain, and not to be removed; the wretch that has fallen is 
trampled on and crippled in the maddening struggle for place 
and pelf. In the case of the laborer thrown out of employ- 
ment, for instance, there is always danger that self-respect, 
hopefulness and ambition, which we have seen to be most power- 
ful factors in industrial efficiency, may fail amid squalid 
surroundings; that a less ample or nourishing diet, and less 
healthful conditions, submitted to for a while, and, j^erhaps, 
the contracting of distinctly bad habits through anxiety, dis- 
apj)ointment and enforced idleness, may so lower his industrial 
power as to unfit him to render the same amount and quality 
of service as before. In such a case, not only is there no ten- 
dency in any economical force that can be adduced, to rei^air 
the mischief that has been done, bxit even the occurrence of 
better times and new oi^portunities, if brought about from the 
outside, indej)endently of any effort of his own, would not 
serve to restore his shattered industrial manhood. 

308. Economic Injuries Tend to Remain and to Deepen. 
— Irrespective of anything catastrophic, the tendency of purely 
economic forces, under a condition of impaired competition, is 
continually to aggravate the disadvantages from which any 
person or class may suffer in the beginning. Defeat is an ill 
preparative for fresh conflicts. Every gain which one makes 
at the expense of another furnishes the sinews of war for 
further aggression; every loss suffered diminishes the capabil- 
ity of future resistance. 

This principle aj^plies with increasing force as we go down- 
ward in the industrial scale. Emphatically is it true, that the 



376 POLITICAL ECONOMY. 

curse of the poor is their poverty. Cheated in quantity, qual- 
ity and price, in whatever they purchase, they are unable to 
get even as much j)roj)ortionally for their little as the rich for 
their larger means. The tendency of j^^ii'ely economical 
forces, therefore, is to widen the differences existing in the 
constitution of industrial society, and to subject every person 
or class, who may, from any cause, be jiut at disadvantage, to 
a constantly increasing burden. 

309. The Doctrine of the Indifference of the rate of Profits 
or Interest. — This law, " to him that hath shall be given," is 
of peculiar importance in the discussion of the wages question, 
when we come to deal with the amount of the profits realized 
by the entrepreneur and the rate of interest obtained by the 
capitalist. The English and American economists have gener- 
ally asserted that it makes no difference what share of the 
product of industry the cajiitalist and the entrepreneur secure 
for themselves, because an excess will surely come back, in 
time, to the laborer, as extra wages: thus Prof. Perry, who has 
written this theme with much freshness and piquancy, says : 
" If capital * gets a relatively too large reward, nothing can 
interrupt the tendency that labor shall get, in consequence of 
that, a larger reward the next time. If capital takes an undue 
advantage of labor at any j^oint, as unfortunately it sometimes 
does, somebody at some other jjoint has, in consequence 
of that, a stronger desire to employ laborers, and so the wrong 
tends to right itself. This is the great conservative force in 
the relations of capital to labor," and Prof. Cairnes says: 
" Supposing a group of employers to have succeeded, as no 
doubt would be perfectly possible for them, in temporarily 
forcing down wages by combination in a particular trade, a 
portion of their wealth previously invested would now become 
free — how would it be employed ? Unless wc are to sujipose 
the character of a large section of a community to be sud- 
denly changed in a leading attribute, the wealth so withdrawn 
from wages would, in the end, and before long, be restored to 

*It should be borne iu niintl Ibul Prof. Perry in spciikiug of capital has 
in mind the capitalist-cnii)loyer. lie uses the term profils to iuchideboth 
interest and wliat i?, in tliis work, culled profits. 



LABORERS THEIR OWN TRUSTEES. 277 

wages. The same motives which led to its investment would 
lead to its re-investment ; and, once re -invested, the interests 
of those concerned would cause it to be distributed amongst 
the several elements of capital in the same projDortions as 
before. In this way covetousness is held in check by covet- 
ousness, and the desire for aggrandizement sets limits to, its 
own gratification." 

310. The Laboring Class their own Trustees and Guar- 
dians. — If what has been thus far said in this chapter is true, 
the reader will not be prompt to accept this doctrine of the 
indifference of the rate of profits or of interest. The laboring 
class have never been ready, on their part, to accept it ; and 
the dislike which they have been prone to exhibit towards 
political economy has probably been due as much to the teach- 
ings of its professors on this point, as to any other cause. 

311. The old Regime.— All this sort of reasoning in econo- 
mics which makes the employing or the capitalist class, in a 
state of imperfect competition, the guardians of the laboring 
class, in such a way that it really doesn't matter whether the 
laborer gets all the wages he might, or even, at any given 
time, gets any wages at all, since excessive profits, or interest, 
will further enrich those classes who hold their wealth in trust 
for him, is closely analogous with the political argument by 
which privileged classes have always been ready to demon- 
strate that it really doesn't matter how much power is entrusted 
to them, since the interests of all, high and low, rich and poor, 
are bound up in such a way that all must rejoice or suffer 
together ; and that the powers of legislation and administra- 
tion may be left with those who are most intelligent, most apt 
for government, those who have most leisure for public affairs 
and the largest stake in society — themselves, in short — with 
entire assurance that nothing can be done prejudicial to the 
interests of the lower classes. 

In politics we have learned better. The theory of the guar- 
dianship of the lower classes is now left to Russia alone. 
There is no class fit to determine its own rights and to pre- 
scribe the duties of others. Inevitably will tyranny be engen- 
dered on the one side, where there is weakness and helplessness 



278 POLITICAL ECONOMY. 

on the otlier. There is only one way in which the rights and 
interests of any body of men can he thoroughly secured, and 
that is by being placed in their own keeping, with strength 
enough to make the invader rue his act. I see no reason to 
doubt that a better study of the conditions of economic life 
will justify the laboring class in their stubborn conviction that 
their wages are safest in their own pockets, and in their con- 
sequent disinclination to accept the capitalist or the employer 
as the trustee of their earnings. 

312. What may help the Laboring Class in Competition 
for the Product of Industry. — Granting that perfect com- 
petition would do all that has been claimed for the working 
classes, realizing the very ideal conditions under which they 
should work, but, at the same time, recognizing the fact that, 
in industrial society as now constituted, competition is very 
partial and incomplete, let us enquire what, if anything, can 
be done to help the laboring classes in their competition for 
the product of industry. 

The answer of the economists of the laissez /aire, or Man- 
chester school to this enquiry is a very easy one. Freedom 
being the ideal condition, and society suffering from lack of 
it, let us have all the freedom we can get, at this time, and 
thus prepare the way for more of it in the time to come ; let 
us abolish everything in the way of restraint or regulation, 
everything in the way of concert or combination in industry, 
which we can abolish, and trust to the future for doing aAvay 
with those obstructions to the freedom of industrial action 
and movement which are now beyond our reach. 

313. Economics and Polities. — This answer is so easy as 
not unfairly to arouse some suspicion. Do we deal in this 
spirit with the question of jjrogressive freedom in government ? 
Does any right-thinking man, with his eyes open upon the 
experience of the last hundred years, allege that progress 
towards freedom is best to be effected by indiscriminately 
throAving off restraints ? Is it not admitted by the most ardent 
friends of freedom, that discretion and order must be observed 
in removing ])olitical chocks and balances and limitations ? 
Are there not, in any well-organized society, restrictions which 



REGULA TION OF CONTRACTS FOR LABOR. 279 

correspond to certain human infirmities of which we cannot 
now hope to rid the race, in such a way that the existence of 
the restrictions increases the actual degree of freedom enjoyed 
by the community, while the removal of these would in the 
present unmistakably diminish the general freedom of action 
on the part of members of the community.* 

314. The Burning Theatre. — But if any reader distrusts 
an analogy drawn between economics and politics, let us take 
a case from real life where all the elements can be easily and 
confidently grasped. Suppose a crowded audience to be seek- 
ing to escape from a theatre which has taken fire. There 
might be time enough to allow the safe discharge of all in the 
house, and, if so, the individual interest of each person clearly 
would coincide with the interest of the audience viewed col- 
lectively, namely, that he should fall in precisely according to 
his position relative to the common place of exit, and should 
move just so fast and no faster, according to the rate of dis- 
charge from the building into the outer air. Yet, human 
nature being what it is, we know that there would be great 
danger of a furious rush for the door, which would lead to the 
very serious retardation of the movement of the audience as a 
whole, and probably to many j)ersons being trampled upon or 
burned. Suppose, now, that at the moment of alarm, a score of 
resolute policemen were to present themselves and take control 
of the audience, what could they do ? Clearly they could not 
cause the audience to be discharged more quickly, safely and 
harmoniously than would be the case did every person in the 
audience truly comprehend the situation and act coolly with 
reference to his own interest, as above stated; but, as compared, 
not with what the audience ought to do, but what they prob- 
ably would do, the advent of the policemen would save many 
limbs and lives, j)erhaps avert a calamity that would have filled 
the world with horror. With discipline thus imposed upon 

. * "The modern English citizen, who~lives under tlie burden of the 
revised edition oi the statutes, not to speak of innumerable municipal, 
railroad, sanitary and other by-laws, is, after all, an iulinitely freer, as 
well as nobler, creature, than the savage who Is always under the despot- 
ism of physical want." — Jevons— "The State in Relation to Labor." 



380 POLITICAL ECONOMY. 

men in such a situation, the procedure which would be for the 
interest of each and of all might go forward swiftly, surely and 
steadily, under authoritative du'ection. Discipline can, indeed, 
create no force, but it may save much waste. 

315. Begistration of Land.— But if any one is still dis- 
posed to distrust all analogies drawn between things inside 
and things outside the S2:)here of economics, let us take the 
case of a regulation prescribing the registration of real estate 
and the recording of all transfers and mortgages of land. 
Such a regulation would be restrictive upon transfers. Trans- 
fers would be required to be made in writing and after a defi- 
nite form ; certain w^ords must be used to make the instru- 
ment effective; a certain delay must be submitted to; an 
oifice, j^erhaps at a distance, must be visited; copies must be 
made; a fee must be given. Yet who does not know that 
a regu.lation of this character, though in name restrictive, 
would in fact not retard but immensely jn'omote the transfer 
of real estate. For uncertainty it would substitute the highest 
assurance; for the risk of losing the whole principal sum paid 
it would offer a clear and indefeasible title, which would repay, 
many times over, the petty fee and the little trouble required. 
The slow and costly transfer of real estate in England, where no 
such system of registration exists, in comjaarison with the 
cheap and easy transfer of the same species of property in 
the United States, affords a measure of the force of this cause. 

316. Always a Practical Question.— Perhaps enough has 
been said to show that the question whether a certain act, 
ordinance or social arrangement retards or promotes the move- 
ment of labor to its market, is a practical question, not to be 
determined a priori, except in the case of extreme measures, 
but to be considered and decided Avith reference to the existing 
condition of industrial society and to the actual infirmities or 
liabilities of the laboring ])opulation to wliich it was intended 
to apply.* A crutch operates only by restraint, and to a man 

* " The outcome of the enquiry is that we can lay down no hard and 
fast rules, but must treat every case, in detail, upon its merits. Specific 
experience is our best guide, or even express experiment where possible." 
Jevons — " The Slate in Relation to Labor." 



WAGES AND PUBLIC OPINION. 281 

of sound limbs can be only a hindrance; but it is a restraint 
which corresponds to the infirmity of a crijjple, and may be 
the only means of enabling him to walk, or even of keeping 
him from falling hopelessly to the ground. 

In application of these remarks, a brief discussion of the 
influence of Trades Unions and strikes ujion wages and upon the 
condition of the laboring class will be found in Part VI. 

317. Wages and Public Opinion.— Is it consistent with 
economical principles that a favorable public oj^inion should 
enhance wages ? If it be so, then nearly all English and 
American political economists have been in error, for they 
have treated every suggestion of this character with contempt. 
When the writer first ventured, in 1874, to urge that respect 
for labor and sympathy with the laboring class might become 
a force, a strictly economical force, in determining the market 
rate of wages, he was greeted with derision. He has reason 
to believe that in the intervening years the arguments then 
presented have worked their way well towards a conviction of 
the public mind that the cause thus adduced is not an unreality, 
but one which actually operates with perceptible force within 
the field of economics. 

Let it be observed that what is claimed is, not that compas- 
sion and sympathy will induce employers here and there to 
pay wages above the market rate, but that these sentiments 
may become a force in determining what the market rate shall 
be. 

318. An Analogous Case.— And, in the first place, why this 
incredulity on the first suggestion of the subject ? Is it not 
true that sentiments of personal kindness and of mutual respect 
between classes of the community have had a very important 
influence, in many countries, (see pars. 248-50) in determining 
the rates at which land should be leased ? He would be a bold 
man who should contradict Prof. Thorold Rogers, on a ques- 
tion of rents in England, or M. Sismondi, on a question of 
rents in Italy. And if public opinion may be a very powerful, 
often a predominant, force in determining the rent of land, 
why should we not expect that it would have at least an 
appi'eciable force in determining wages ? 



282 POLITICAL ECONOMY. 

319. The Reason of the Case.— But let us leave analogy, 
and turn to the reason of the individual case. How can the 
sentiments we have invoked become an economical force, and 
thus enter into the distribution of wealth between the several 
classes which unite in its production ? I cannot answer this 
question better than in language I have already once used.* 

Let us recall the principle, so often insisted on, that it is 
only as competition is perfect that the wages class have any 
security that they will receive the highest remuneration which 
the existing conditions of industry wall permit ; that, in the 
failure of competition, they may be pushed down, grade by 
grade, in the industrial as in the social scale, there being 
almost no limit to the possible degradation of the working 
classes where a free circulation of labor is denied. Let us 
recall, moreover, that the failure of competition may be due to 
moral as much as to jAysical causes; that if the workman 
from any cause does not pursue his interest, he loses his inter- 
est, whether he refrain from bodily fear, from poverty, from 
ignorance, from timidity, and dread of censure, or from the 
effects of bad political economy, which assures him that if he 
does not seek his interest his interest will seek him.f Let us 
bear in mind, moreover, that it matters nothing whetlicr com- 
petition fails in his case because he does not begin to seek a 
better market, or, having begun, gives up in discouragement. 

Now I ask, can it be doubtful that the respect and sympathy 
of the community must strengthen the wages class in this 
unceasing struggle £or economical advantages; must give 
weight and force to all their reasonable demands; must make 
them more resolute and patient in resisting encroachment ; 
must add to the confidence with which eacli individual h^bortr 
will rely on the good faith of those who are joined with him 
in his cause, and make it harder for any weak or doubtful 
comrade to succumb in the contest ? 

And, on the other hand, will not the consciousness that the 
whole community sympathize with the efforts of labor to 

♦The Wages Question. 

f The doctrine of the iudifferencc of the rate of profits— see par. 309, 



THE LAMENTABLE CASE OF HODGE. 283 

advance its condition, by all fair means, inevitably weaken 
the resistance of the employing class * to claims which can be 
conceded, diminish the confidence with which each employer 
looks to his fellows to hold out to the end, and make it easier 
for the less resolute to retire from the contest and grant, 
amid general applause, what has been demanded ? 

And if such a disposition of the public mind must confirm 
the minds and exalt the courage, and sustain the faith of the 
party that hears everywhere approving words, meets every- 
where looks of sympathy, and must tend to impair, somewhat 
at least, the mutual trust and common resolution of their 
opponents, who shall say that wages may not be affected 
thereby ? 

320. The Lamentable Case of Hodge.— Let us apply these 
principles to an individual case. Hodge thinks — Hodge is a 
ploughman, and has been getting twelve shillings a week — 
that he ought to have more wages, or, rather, for Hodo-e 
would scarcely put it so abruptly, he feels that it is dread- 
fully hard to live on twelve shillings. He has attended a 
lecture delivered by Mr. Josej)h Arch from a wagon on the 
green. He is uneasy and wants to improve his condition. 
So far, then, he is a hopeful subject, economically. The 
desire to improve one's condition is the sine qua non of com- 
petition. Will these stirrings of industrial ambition come to 
any tiling ? Will this leaven of unrest leaven the whole of the 
very lumpish lump christened Hodge ? Will the discontented 
ploughman seek and find his better market ? f This is a great 
question, for upon the answer to it depends the future of 
Hodge, and perhaps of his sons and grandsons. Let the 8pec- 

* "Masters are always and everywhere in a sort of tacit, but constant 
and uniform, combination not to raise llxc wages of labor above their 
actual rate. " — Adam Smilli : ' ' Wealth of Nations. " 

fin discussing his valuable returns before the London Statistical 
Society, Mr. Fred. Purdy says: "It would appear that no commodity in 
this country presents so great a variation in price, at one time, as agri- 
cultural labor, taking the money wages of the men as the best exponent 
of its value. A laborer's wages in Dorset or Devon are barely half the 
sum given for similar services in the northern parts of England." Among 
the causes of this Mr. Purdy cites " the natural «« inertm of the class." 



384 POLITICAL ECOiVOMY. 

tator (August 4, 1872), tell how he is assisted on his way aud 
encouraged in his weak, ignorant, doubting mind, by landlord, 
bishop, and judge. 

" The man has been, so to speak, morally whipped for six 
months. He has found no friend anywhere, except in a 
press he can neither read nor understand. The duke has 
deprived him of his allotment; the bishop has recommended 
that his instructor should be ducked; the squire has threat- 
ened him with dismissal in winter; the magistrate has fined 
him for quitting work, which is just, and scolded him for 
listening to lectures, which is tyranny; the mayor at Evesham 
has prohibited him from meeting on the green; and the 
lawyer — witness a recent case near Chelmsford — has told him 
that any one who advises and helps him to emigrate is a hope- 
less rascal." 

Now I ask, in all seriousness, is Hodge quite as likely to 
pursue his interest and persist in whatever that requires — 
— which, be it observed, is no other than what the interest of 
the whole community requires — as if his social superiors, and 
the men Avho should be his instructors and helpers, were 
encouraging him to better his fortune if he finds a chance, 
instead of telling him that if he demands more wages, he is 
kicking against the wage fimd, and that, if he kicks against 
the wage fund, he is denying an ordinance of lieaven; as if 
the shopkeeper and the publican and the lawyer and the rec- 
tor were not all ranged against him ? Is it not possible that, 
for the lack of a little fanning, the feeble flame in Hodge's 
breast may die out, and he, giving up all thought of seeking 
his fortune elsewhere, return to his furrow, never to stray from 
it again ? 

321. Becapitulation. — I may briefly summarize as follows 
the views thus far presented, on the subject of wages under 
the entrepreneur organization of industry. 

1st. Rejecting decisively the doctrine of the wages fund, 
the doctrine, that is, of a predetermined dividend, which is 
irrespective of the nmnber or industrial quality of tlie wages 
class, T hold with Prof. Stanley Jevons, that wages equal the 
whok' producrt, inliodi rent, interest and profits. 



WAGES. 385 

2d. In reaching the origin and limit of profits, the remuner- 
ation of the employer, as distinguished from interest, the 
remuneration of the non-employing capitalist, I closely affili- 
ate profits with rent. Of the justice of this view I am fully 
persuaded, and fearlessly challenge criticism. 

3d. In determining how much in the shape of rent, interest 
and profits, shall be taken out of the product before it is 
turned over to the laboring class to have and to enjoy, I hold 
that the only security which the laboring classes can have that 
no more will be taken than is required by the economical princi- 
ples governing those shares, respectively, is to be found in 
full and free competition, each man seeking and finding his 
own best market, unhindered by any cause, whether objective 
or subjective in its origin. In other words, I reject the doc- 
trine, that if the laborer does not seek his interest, his interest 
will seek him, and hold, instead, that if the laborer does not 
seek his interest, he loses it, in greater or smaller measure. 

4th. In the failure of competition, I hold that economical 
injury, more or less serious, may be wrought upon the laboring 
class. 

(«) By the lowering of the standard of the employers of 
labor, allowing persons to remain in charge of production 
who would be driven out by a stronger competition, and thus 
increasing the aggregate amount of profits, just as the driv- 
ing of cultivation down to inferior soils increases the aggre- 
gate amount of rents. 

{h) By the breaking down of the industrial quality of the 
laboring class, through a reduction of wages which in time tells 
prejudicially upon their health, habits and spirit, making them 
thereafter industrial agents of a lower, perhaps of a lower 
and still lower, order. 

5th. In opposition to the orthodox doctrine that all such 
economical injuries are in their nature temporary and tend to 
disappe;ir, I hold that, so far as purely economical forces are 
concerned, they tend to perpcUiate themselves and to grow 
from bad to worse, the word, " to him that hath shall be given," 
expressing an economical law of the widest range; that, again, 
so far as purely economical forces are concerned, in all indus- 



280 POLITICAL ECONOMY. 

trial communities, the rich tend to become richer and the poor 
to become poorer; and that only social and moral forces, like 
charity, education, religion, political ambition, entering from 
the outside, or physical forces, like the discovery of new prin- 
ciples of chemical or mechanical action or of new resources in 
nature, can restore the economical equilibrium if once destroyed 
by the weakness of the laboring class. 

6th. That among laboring populations whose freedom of 
movement has become greatly impaired, either by the force of 
law or by their own poverty, ignorance and inertia, restric- 
tions and regulations from the outside, or combinations 
among the laborers themselves, although these do in form vio- 
late the principle of competition, may yet, in so far correspond 
to the infirmities of such populations as to have the effect to 
promote, it may be greatly to promote, the actual efficiency 
with which the laboring class seek their own interests, in the 
distribution of the j^roduct of industry. 

322. The Doctrine of Laissez Faire.— What, then, becomes 
of the characteristic doctrine of the so-called Manchester 
School, laissez faire: hands off: leave economic forces to work, 
alike unaided and unhindered, in the assurance that the inter- 
ests of individuals will be found to harmonize so far with the 
interests of the community as to secure the highest welfare of 
each and of all ? 

On this point my views cannot be expressed so well by 
phrases of my own devising, as in the language of the two 
most eminent English economists of this generation. 

" There is no evidence," says Prof, Cairnes,"either in what we 
know of the conduct of men, in the present stage of their 
development, or yet in the large experience we have had of 
the working of laissez faire, to warrant the assumption that 
lies at the root of this doctrine. 

** Human beings know and follow their interests according to 
their lights and dispositions ; but not necessarily, nor in prac- 
tice always, in that sense in which the interest of the individ- 
ual is co-incident with that of others and of the whole. It 
follows that there is no security that the economic phenomena 
of society, as at present constituted, will arrange themselves 



LAISSEZ .FA IRE. 287 

spontaneously in the way wliich is most for the common 
good. 

" In other ^YOv^&,laissez faire falls to the ground as a scientific 
doctrine. I say as a scientific doctrine ; for let us be careful 
not to overstep the limits of our argument. It is one thing to 
repudiate the scientific authority of laissez fairs, freedom of 
contract,and so forth ; it is a totally different thing to set up the 
opposite principle of state control, the doctrine of paternal 
government. For my part, I accept neither one doctrine nor 
the other ; and, as a practical rule, I hold laissezfaire to be 
incomparably the safer guide. Only let us remember that it is 
a practical rule, and not a doctrine of science ; a rule in the 
main sound, but, like most other sound practical rules, liable 
to numerous exceptions ; above all, a rule which must never, 
for a moment, be allowed to stand in the way of the candid 
consideration of any promising proposal of social or industrial 
reform," 

" It is futile," wrote Prof. Jevons, in his latest work, " to 
attemjDtto uphold, in regard to social legislation, any theory of 
eternal fixed principles or abstract rights. The whole matter 
becomes a complex calculus of good and evil. All is a ques- 
tion of probability and degree. * * * J venture to main- 
tain that we shall do much better, in the end, if we throw off 
the incubus of metaphysical ideas and expressions. "We must 
resolve all these supposed principles and rights into the facts 
and probabilities which they are found to involve when we 
inquire into their real meaning. 

" The right of a man to dispose freely of his labor, means the 
recognition by the legislature, that, in the majority of cases, a 
man is the best judge of his own interests in disposing of his 
labor. In a number of cases specified in the statute books, 
the legislature recognizes an opposite state of things. 

" The principle of the freedom of trade stands on the same 
footing ; it is a probability of advantage which, however, 
must be set aside in case of greater probability of evil." 



288 POLITICAL ECONOMY. 

CHAPTER VI. 

SOME MLNTOE SHAKES IN" DISTEIBUTION. 

323. We have discussed tlie distribution of the j^roduct, 
under the entrej)reneur organization of industry. We have 
seen that this product is divided into four principal shares, 
rent, interest, profits and wages, corresponding to four classes 
of claimants. We have now to enquire what hecomes of cer- 
tain portions of the product, which do not ajipear to go into 
either of the four shares enumerated. And first of the amount 
taken by government. 

324. Taxation. — There has long been a difference of opinion 
among economists, whether taxation should be a title in distri- 
bution or in consumption. Prof. Senior held to the latter 
treatment; Prof. Jevons favors the former. 

The difference is just this: Shall we regard government as 
a fifth original claimant upon the product of industr}^^ taking 
its share under the name of taxes, as the land-owner takes 
rent,, the capitalist interest, the employer profits, and the 
laborer wages; or shall we regard the product as divided into 
four shares, out of each of which is paid, as one form of the 
owner's consumption of his income, a sum, greater or less, for 
tlie sustentation of government, just as out of each such share 
are paid sums, greater or less, for shelter, for food, for fuel, for 
aesthetic gratification, etc. ? 

The question is not a very important one, and neither 
decision solves all the difficulties of the case, since the functions 
of government are so various and so widely diverse. 

On the one hand it is said that government is a great jiro- 
ducer and should be regarded as a claimant in distribution, 
taking its share under the name of taxes. Government builds 
and keeps in repair roads and bridges and breakwaters and, 
perhaps, also, canals and railways, for the purposes of trade 
and industry. Government maintains a constabulary and 
court-houses and jails, that the honest and industrious may 
work without hindrance or even fear of molestation. Govern- 
ment does a great many other things which minister 



TAXA TION. 289 

directly to the creation of values, vastly increasing the 
amount of the product over what it would have been with- 
out the intervention of this agency. 

On the other hand, it is said that a great part of what 
government does has not the production of wealth as its 
primary object, and that much does not even contribute in- 
directly to that end as in the case of the vast military and 
naval expenditures of the nations of Europe, VN'^hich have for 
their purpose, not the preservation of civil peace, but to main- 
tain the existence or extend the power of nationalities or of 
dynasties; and, secondly, that whatever the objects of expen- 
diture, government does not obtain its revenue through the 
agencies of exchange, but by forcible collection, irrespective 
of the consent of the individual taxpayer, men contributing to 
the support of government, not because government has made 
it worth their while to do so, not because government is j^re- 
pared to render an equivalent for what it receives, but simply 
because government demands the contribution and will have 
it. For these reasons, it is urged, the revenue of the State 
should not be treated as a share in the distribution of the pro- 
duct of industry, but should be regarded as a form of con- 
sumption. 

As has been said, the question is not free from difficulties, 
whatever course be taken. A thoroughly consistent treatment 
of the subject of taxation would require the appearance of 
this title in more than one department of political economy. 

(«.) The function of government in the creation of values 
is extensive and important under the modern organization of 
industrial society. In the department of Production might 
be traced the outline of that part of the field of wealth which 
only government can fully and effectively occupy. The build- 
ing and maintenance of roads and bridges, of breakwaters and 
lighthouses, the opening of harbors, and the improvements of 
rivers, all directed, as they are, towards the end of a larger 
production of wealth, form a notable part of the industrial 
agencies of all progressive communities. These things, if 
done on the initiative and at the expense of individuals who 
looked to tolls, and fees, and dues for their reimbursement, 
19 



290 POLITICAL ECONOMY. 

"would be by all deemed producti\e, in the fuUesr sense. They 
are not less so when done by government, with funds raised 
by taxation. 

(5.) The methods of taxation, the subjects of imposition, 
the agencies of collection, so far as they affect the ultimate 
incidence of taxation, that is, so far as they determine that 
the pressure of taxation shall finally rest here and not there, 
on this class and not on that, fall within the department of 
Distribution. The question, e. g., whether a tax on wages 
results in a reduction of the comforts, luxuries, and necessa- 
ries enjoyed by the laborer, or is, in the end, paid by the 
employer; whether a tax on rent rests upon the landlord, oris 
by him shifted upon the consumer of agricultural produce : 
these and the like are questions in Distribution. 

(c.) The effects of the expenditure by government of a cer- 
tain amount of wealth, as contrasted with the effects of the 
expenditure of the same amount by the classes who paid the 
taxes that put the treasury in funds, belong to the depart- 
ment of Consumption, 

{d.) The question, how the largest amount of revenue can 
be secured with the smallest cost of collection ; how the 
needed revenue can be procured with the least irritation of 
the public mind ; how the highest assurance can be obtained 
as to the proper custody and disbursement of the funds col- 
lected ; these and the like are questions in fiscal or " Cameral- 
istic" science,* and not in economics strictly considered. 

{e.) In addition to the question [h), what is the ultimate 
incidence of any existing or projected body of taxes ; who, in 
in the last resort pays them ; whose sum of enjoyment is 
actually diminished by the imposition, we have a question, to 
which writers on taxation devote a large part of their space, 
viz., who ought to pay the taxes of any given community : 
what classes should contribute to the support of the govern- 
ment, and in what proportions ? 

This is purely a question in political equity. The relations 

* Bentiiam calls fiscal science "au append and inseparable accom- 
paniment to political economy." 



THE STIPEND CLASS. 291 

of political equity to political economy have been, perhaps, 
sufficiently discussed in par. 32. 

The foregoing would be the true logical treatment of taxa- 
tion, in a work on political economy. In an elementary treat- 
ise, however, I do not deem it worth while to deal so elabor- 
ately with this subject, and will postpone to Part VI. what- 
ever I have to say regarding taxation, except so far as it may 
be desirable to speak of the influence of governmental expendi- 
tures in the department of Consumption. 

325. The Stipend Class.— Purely for convenience of char- 
acterization, I apply the term Stipend Class to all those per- 
sons who are employed, not as a means to increase the income 
of their employ ers^ but for the purposes of comfort, of 
leisure, of luxury, of dignity, or for the cultivation of intel- 
lectual faculties or moral graces. This class embraces many 
of the highest and many of the lowest members of society. 
At the one end of the scale, we have the menial servant ; at 
the other, the minister of religion, the teacher of science, and 
the artist. To this class belongs the soldier, the public official, 
the man of letters, the lawyer, and the physician. The test 
for discriminating the wages class from the stipend or salaried 
class, is found in the expectation or non-expectation of profits. 
Where the reason for the employment is found in the expec- 
tation of the employer that he will realize a profit by the 
labor or service, there we have the true sign of the wages 
class ; where that expectation does not exist, we recognize the 
characteristic of the stipend class. Hence, we may broadly 
say : no profits, no wages. 

Let us take, for illustration, the domestic servant. He is 
not employed as a means to his master's profit. His master's 
income is not due, in any part, to his employment ; on the 
contrary, that income is first acquired, or reasonably assured, 
as a condition to the servant being employed at all ; and just 
so far as servants are employed that income is expended. As 
Adam Smith remarks : " A man grows rich by employing a 
multitude of manufacturers {i. e., of operatives) ; he grows 
poor by maintaining a number of menial servants." 

On the other hand, the wage laborer is employed with a 



292 POLITICAL ECONOMY. 

view to the master's profit ; the master's income is derived 
from such employment, and, with good management, is greater 
the larger the number of persons employed. 

" Though the manufacturer," says Adam Smith, meaning 
thereby what we would call the operative, " has his wages 
advanced to him by his master, he in reality costs him no 
expense, the value of those wages being generally restored, 
together with a profit, in the improved value of the subject 
upon which his labor is bestowed. But the maintenance of a 
menial servant is never restored." 

For the reason so well stated by Dr. Smith, I shall remit to 
the department of consumption all that it may be needful to 
say of this class. The income by which they are supported 
is not of their own making. They are support(3d out of the 
revenues of others. The future production of wealth may or 
may not be increased by virtue of their present employment. 
That is exactly the question (par, 339) which we have to 
treat under the title consumjDtion. We shall find that indi- 
rectly many members of this class minister most importantly 
to the economical greatness of their country, by nourishing 
personal virtue, by raising the standard of social ambition, by 
preserving life and health, by quickening the general intelli- 
gence of the laboring class, or by discovering new principles of 
chemical and mechanical action, or new apjjlications of famil- 
iar principles to the arts, which may vastly increase the pro- 
ductive capability of the next generation. But all this has 
reference to the future, to a future more or less distant. In 
the immediate present these persons are not producing, but 
consuming, wealth. Thej'^ are supported out of the revenues 
of others. 

326. The Speculating Class.— Incidental to all the pro- 
cesses of production and exchange is the chance of gain or 
loss through the rise or fall of prices during the interval 
between buying and selling; between making and selling. 
This gain or loss may be very slight, in any given case, or it 
may be very considerable. There were many manufacturers 
in the United States who made fifty or a hundred thousand 
dollars, clear, by the rise of cotton, on their hands, in 18C1 



SPECULATION. • 393 

and 1862, and this without intentionally speculating at all, 
but simply through holding a large stock for the purposes of 
legitimate manufacturing. At other times, the daily, weekly, 
monthly fluctuations of prices will be very slight, now all on 
one side, for a long time; now, all on the other side; then, 
oscillating backwards and forwards across what we may call 
the average price. 

To a great extent, these fluctuations of price may be trusted 
in time to offset each other, as regards gain and loss to any 
individual merchant or manufacturer, so that if he have capi- 
tal or credit enough to carry him through,he will be none the bet- 
ter and none the worse, on this account. Yet after all the effect 
of this is exhausted, there will still be a chance of gain or of 
loss, which may be so considerable as to become an important 
element in determining the rate of profits, or even in deciding 
the solvency of the merchant or manufacturer, in spite of the 
strictest observance of the rules of prudence in all other 
respects, and in spite of the greatest energy and industry in 
the conduct of business. 

Within this field, so far as the great body of business men 
are concerned, fortune holds undisputed sway. They lack, 
not only in degree but in kind, the faculty to discern the signs 
of the future; they do the best they can to produce good 
articles cheap, to meet the demands of the public as to fash- 
ions and styles, to keep their general expenses down, and to 
avoid losses by bad debts. When they have done this, they 
have done all they can for themselves ; and whatever gains or 
losses come to them through the fluctuations of the market, 
come as if wholly by chance. There are other men who have 
a rare power to apprehend in advance the movements of the 
market. It is always found that when materials begin to rise, 
these men liave a large stock on hand. Let a disastrous fall 
occur, these men are never caught by it. Whichever Avay the 
market turns, it seems as though the sole object were to enrich 
these fortunate beings. 

Of course, this is speculation; yet when it is carried on only 
incidentally to a legitimate manufacturing or trading business, 
we do not call these men speculators. 



294 POLITICAL ECONOMY. 

In every progressive commereial community, however, is 
fonnd a large and increasing number of persons who, either 
possessing this rare faculty of discerning the signs of the mar- 
ket, or flattering themselves that they possess it, make a 
business of buying or selling according to their anticipations 
of a rise or a fall. These persons are not manufacturers; they 
are not merchants, in any proper sense; they do not buy from 
l^roducers or sell to consumers; they are neither importers, 
jobbers, wholesalers nor retailers; they have perhaps no stores 
or warehouses or stocks of goods; possibly, they would not 
know by sight a sample of the commodities they deal in. 
They simply bet upon the market, having a well or ill- 
founded opinion of their own shrewdness and coolness in doing 
so. They may lose a fortune, or make a fortune. 

The difference between the two kinds of speculation may 
be illustrated as follows : A miller in Minneapolis, who grinds 
two hundred thousand bushels of grain a year, may, if he 
have this peculiar kind of insight, by carefully watching the 
market, buy his wheat at two cents a bushel less than he 
would have had to pay for it had he bought it from time to 
time as he needed it for grinding, Thisis sj^eculating. More- 
over, after grinding, he may hold the flour weeks, or months, 
until he sees his chance, and then, by going into the market at 
the right moment, he may sell it at five cents a barrel more 
than if he had sold it as it was made. This again is specu- 
lating. Now here is a saving in materials of $4,000, and a gain 
on the price of the product of, say, 12,000. After making 
allowance for interest on the extra capital required to "carry'' 
the wheat and the flour, and for the cost of storage, the addi- 
tion made hereby to the miller's profits for the year would 
be a very tidy sum. On the other hand, a corn-broker in 
Chicago, who wouldn't know what to do Avith a pint of actual 
corn if it were given to him, except to put it in his pocket, 
may buy and sell twenty thousand bushels a week, buying 
and selling on all sorts of time, ten days, twenty days, sixty 
days, six months, every transaction being a bet upon the 
price of corn at a future date. When the broker buys, ■ he 
bets that the price will rise; when he sells, he bets that it 



SPECULA TION. 395 

will falL The men from whom he buys have as little corn as 
he has; the men to whom he sells would know as little as he 
what to do with actual corn, were any of it to come in their 
way. 

Of speculating as a business, two things may be said. 
First, it is surprising what an enormous aggregate of trans- 
actions a man of little capital and no brains to speak of, may 
conduct in the course of his life, and yet neither lose nor gain 
much if only he confines himself to small individual oj)era- 
tions. Secondly, not less surprising' are the gains of specula- 
tion when conducted by a real master. The amount of 
wealth that can be brought into his hands appears fabulous. 
Every year an appreciable portion of the product of indus- 
try passes into the possession of the men of this class. In 
every highly commercial country, the largest fortunes are 
those made by speculation. The fortunes so made, however, 
are not nearly so numerous as those made by trade and 
industry. 

Speculation is not wholly without its advantages to the com- 
munity. If corn is likely to be scarce and, by consequence, 
high, four months hence, the man who now begins to buy 
does, in so far, call attention to that probability, and, by 
raising the price, advertises, so to speak, for an increased sujDply 
to be brought in from the outside, or for greater carefulness 
in husbanding the existing stock. If beef is likely to fall in 
price, sixty days hence, the man who now sells does what lies 
in him to give notice of an excess of supply, and thus aifords 
duller- witted holders opportunity to get rid gradually of their 
stock, instead of encountering an utter breaking down of the 
market a little later. In a word, speculation while con- 
fined within moderate limits, is the agent for equalizing 
supply and demand, and rendering the fluctuations of price less 
sudden and abrupt than they would otherwise be. 

There are causes, however, which go to render speculation 
extravagant, carrying it beyond all reasonable bounds, multi- 
plying the numbers of the speculating class and vastly 
increasing their gains, at the expense of the sober, productive 
industries of a country. Foremost among these is a vicious 



396 POLITICAL ECONOMY. 

money , system. The frightful extent to which this cause 
engenders speculation may be seen in the history of the 
" Continental " money of the American revolution, of the 
" Assignats " of the French revolutionary period, and of the 
" Greenbacks" of the war of Secession. With prices fluctu- 
ating violently and rapidly, as the result of bad money, the 
opportunities for acquiring large wealth by speculation are 
increased ten-fold, it may be a hundred-fold. This is too much 
for human nature, too much for honesty, too much for prudence. 
A subtle poison runs through the veins of the community, 
turning the heaxt to crime and the brain to folly. The face of 
mankind changes, under such an evil passion, as suddenly and 
as fearfully as does the face of a man stricken with a deadly 
fever. On every hand breaches of trust testify to the 
weakness of the principles of virtue under such a strain, while 
honest and discreet modes of obtaining a livelihood are dispar- 
aged and abandoned for those which promise quicker and 
larger, even if illicit, gains. 

327, Loaded Dice. — Of much of the speculation which is 
practised in the United States and in other countries, though 
l^erhaps not so grossly elsewhere as here, it must be said that 
it is wholly beyond economical, as well as moral sympathy. 
If all speculation is gambling, this is gambling with the dice 
loaded. By means of combinations and corners, the markets 
are often profoundly influenced in order to produce the very 
fluctuations on which the grain or petroleum or stock gamblers 
have made their bets. The mischiefs suffered by trade and 
industry, originating in this source, are monstrous, even incal- 
culable. Whether they can in any degree be repressed by 
law, is a grave political question, with which we are not called 
to deal. 



PART V. 



CONSUMPTION. 



CHAPTER I. 

SUBSISTENCE : POPULATION, 

328. What is Consumption ? — By the term consumption, 
in economics, we express the use made of wealth. This does 
not necessarily imply the destruction of the form or material 
of the commodities so used, or even the exhaustion of the 
value which had at some time been imparted to them, although, 
in general, the use of wealth involves, in a greater or less 
degree, loss of substance and change of form, with a decline, 
rapid or slow, in that power in exchange which we call value. 

" That almost all that is produced is destroyed, is true; but 
we cannot admit that it is produced for the purpose of being 
destroyed. It is produced for the purpose of being made use 
of. Its destruction is an incident to its use; not only not 
intended, but, as far as possible, avoided."* That destruction 
may, in exceptional cases, be practically avoided altogether. 
An intaglio is consumed, in the economical sense, when it finds 
its place in the British Museum, where it may remain unim- 
paired by the lapse of time through uncounted centuries. Cer- 
tain hewn stones w^ere consumed, in the economical sense, 
twenty-five hundred years ago, when they were lifted into their 
place in a Roman aqueduct. As hewn stones, simply, they 
had been commodities, having a variety of possible uses. 
They might have been wrought into the fortifications of the 
city, or used in building a temple, or an amphitheatre, or a 

"Prof. N. W. Seuior. 
297 



298 POLITICAL ECONOMY. 

private palace. But when once they were applied to a definite 
use, they were, in the economical sense, consumed. They 
ceased to be merely hewn stones, to be sold by themselves, 
and subject indifferently to many uses; they became insepara- 
ble parts of something else. Yet, though consumed, they were 
not destroyed, since the aqueduct still carries water for the 
use of the citizens. 

Iron ore is consumed, ^. e., applied to the end in view in its 
production, when thrown into the furnace, and here takes place 
almost instantaneously not only a great chemical change, but 
a complete loss of form. The iron bar or plate is in turn con- 
sumed, when it is fitted into a bridge, without undergoing any 
chemical or mechanical change at the time, to be thereafter 
subject only to slow agencies of decay in the atmosjDhere, or 
to effects of attrition which, from one year to another, would 
be imperceptible. The bridge is consumed, that is, applied to 
the end in view in its production, when opened to traffic. 

329. Consumption as a Department of Political Econo- 
my. — Why should the economist interest himself, at all, in 
questions relating to consumption ? Why, having traced 
wealth through its production, distribution and exchange, 
should he not leave it in the hands of the consumer without 
further enquiry, satisfied with its having reached the end for 
which it M^as created ? So have many, indeed most, economists 
dealt with the uses of wealth, declining to recognize consump- 
tion as a department of political economy. 

It is, of course, comi^etent to any writer on economics thus 
to limit the scope of his enquiry; but I cannot but deem it a 
subject of much regret that the fascinations of the mathe- 
matical treatment of economical questions, and the ambition 
to make political economy an exact science, should have led 
to the practical excision of the whole department of consumption 
fi-om so many recent works. For, after all, the chief interest 
of political economy to the ordinary reader, its chief value to 
the student of liistory, must be in the explanation it affords 
of the advance or the decline in the productive power of 
nations and communities; and it is only in the consumption of 
wealth that we find the reasons for the rise of some and the 



CONSUMPTION. 399 

fall of others, from age to age.* It is in the use made of the 
existing body of wealth that the wealth of the next genera- 
tion is determined. It matters far less for the future great- 
ness of a nation what is the sum of its wealth to-day, whether 
large or small, than what are the habits of its people in the 
daily consumj)tion of that wealth; to what uses those means 
are devoted, whether to ends which inspire social ambition, 
which restrict population within limits consistent with a high 
per-capita production, which increase the efficiency of the 
laborer and supply instrumentalities for rendering his labor still 
more productive, or to ends which allow the increase of popu- 
lation in the degree that of itself involves poverty, squalor 
and disease, which debauch the laborer morally and physically, 
striking at both his power and his disposition to work hard 
and continuously, and which waste in idle or vicious indul- 
gence the wealth that should go into increase of capital. 
When it is remembered that some of the most accomplished 
statisticians of England estimate the wealth of the kingdom 
at only five or six times the amount of its annual production, 
it will appear of how much more importance, in the large 
view of a nation's future, is the direction of its expenditures 
than the absolute amount of its accumulations, at any given 
time. The completeness with which the French j^eople, 
through their temperance, frugality and industry, combined 
with the strict repression of population, made up in a few 
years the terrific losses and fines of the German war, affords a 
very striking illustration of the virtue there is in the labor 
power of a country to replace its capital, if only a right con- 
sumption of the annual product of industry be assured. 

330. Subsistence. — The primary use of wealth is for sub- 
sistence. In the earliest stages of human society, man, like 

* The late Prof. Jevons, in the introduction to his " Theory of Political 
Economy," after noting the close analogy to the science of Statical 
Mechanics, presented by the Theory of Economy proposed by him, sig- 
nificantly says : "But I believe that Dynamical branches of the science 
of Economy may remain to be developed, on the consideration of which 
I have not at all entered." Elsewhere Prof. Jevons says : "We, first of 
all, need a theory of the Consumption of Wealth." 



300 POLITICAL ECONOMY. 

tlie lower animals, had only one want. Like the lower 
animals, he gathered his food, whether fish or flesh or nuts or 
berries, where he chanced to find it, and ate it without prejv 
aration. Long, however, before he began to cultivate food, 
even in the simplest way, he began to cook it. The discovery 
of fire and its application to the preparation of food, is made 
by some writers upon primitive society to mark the boundary 
between the purely savage and the barbarous condition. 
This, however, must not be understood to imply any very 
considerable advance, since even the embruted cannibal of the 
Pacific cooks his horrid fare. 

Man is the only animal that has attained the capability of 
l^reparing food for consumption. All other species are 
content with the animal or vegetable matei'ial; man, even in 
the lowest of existent communities, demands for his subsist- 
ence something more than the raw material; it must be pre- 
pared or manufactured for his uses, though it may be by only 
rude and simple processes. 

331. Clothing and Shelter. — At what stage in the evolu- 
tion of the human kind, clothing and shelter, other than that 
furnished by the casual cave or by the foliage of the forest, 
became a requirement of the theretofore naked man, exposed 
unsheltered to the storm, we need not enquire. At moderate 
elevations above tlie sea, throughout the zone of the earth in 
which the human race probably originated, that requirement 
has never been very onerous, so far as the labor of construc- 
tion or preparation is concerned. The amount of effort there 
involved in providing the bamboo hut, the wigwam of poles 
and boughs, or the tent of skins, for protection against the 
rainy season, and in providing the scanty garment of pelts or 
of cloth, demanded by comfort or by the awakened sense of 
decency, has never been great. Food still remains, in those 
regions, the one great requirement of human existence. 
When, however, mankind spread over liigher altitudes or 
zones further removed from the equator, as tribes were driven 
up the mountain sides by victoi'ious enemies, or were crowded 
toward the arctic or antarctic circles by the increasing scarcity 
of the casual food of the chase, of the fishery, or of the natural 



777^ WIFE. 301 

grove or forest, the requirement of clothing, of shelter, and 
last of all, of fuel, came to be of increasing urgency and 
severity. Within certain limits, however, clothing, shelter and 
fuel are, in the higher latitudes, convertible, or interchangeable 
with food, in the human economy. One of the prime purposes of 
food being there the maintenance of the warmth of the body, 
that occasion may, in part, be served indifferently by a certain 
amount of food administered internally, or by clothing of a 
certain thickness applied to the frame, or by the combustion of 
a certain amount of fuel within an enclosure, or of a larger 
amount of fuel in the open air. And here, as on the ten 
thousand occasions of a higher civilization, it is found that the 
greatest economy resides in the largest capitalization of labor, 
A dress of skins, which may have cost the effort of a week, will, 
during the time it lasts, more than replace, for purposes of 
warmth, food which would have required the efforts of many 
months. A hut which may have been a season in building, 
may save more in the food actually required for health and 
comfort, during the life time of the builder, than could have 
been obtained by the hunting or the fishing of years. 

332. Now let us suppose that, within some natural geo- 
graphical division of the earth, the conditions of production 
are such that each adult male is able by steady labor to secure 
for himself considerably more, in the way of food, clothing, 
shelter, and fuel than is required for his own subsistence in 
health and strength to labor, and in physical comfort, meaning 
by this last, not much, only a freedom from j^ain and discomfort 
as the result of a deprivation of things actually necessary. 
It does not matter, for the present j)urpose, whether the 
laboring population in question obtain the means of subsist- 
ence, in the degree assumed, as hunters, as fishermen, as 
herdsmen, or as agriculturists. The question we have to ask 
is, what will these laborers do with the wealth they produce, 
after the strict needs of their own subsistence are met; how 
Avill they consume it ? 

333. The Wife. — In the first instance, it may be assumed 
that each laborer will undertake the support of one adult 
female, and this, not out of charity or compassion, not by the 



303 POLITICAL ECONOMY. 

force of any legal arrangement, not with any reference to the 
continuance of the tribe or community, but in obedience to a 
natural selfish instinct which is second only, in the demand 
it makes upon men, to the craving for food. The latter 
satisfied, the former asserts itself, irrejjressibly, among all 
classes and conditions of men, in all states of human society. 

The woman with whose subsistence the laborer's income or 
annual production of wealth thus becomes charged, will, in a 
greater or less degree, add to the means of the family thus 
formed. She will spin and weave, fashioning the fibrous 
materials which the man has gathered, into garments, 
blankets, and nets; she will, in various ways, prepare the flesh, 
the fish, or the vegetable food, which the head of the family 
sujDplies, rendering it more palatable, more nutritious, more 
wholesome, or less perishable, according to the nature of the 
subject matter; she will bring water from the spring or brook; 
she will keep the hut or tent in a certain order and decency. 

While, thus, the female, in an early stage of industrial 
society, adds something, it may be much, to the family means, 
both by what she makes and by what she saves from waste, 
we may assume that, speaking broadly, she does not produce 
nearly as much as she consumes. The margin of subsistence 
which the hunter, the fisher, the herdsman, the tiller of the 
soil enjoys, is smaller after he has taken him a wife than 
before. Nor is the contribution made by the wife to the 
joint revenue of the family, in any degree, a determining 
cause of the formation of the family. That association 
would in general take place just as surely were the wife phy- 
sically incapacitated for making any such contribution, a suf- 
ficient reason being found in the natural instinct adverted to. 
There have, indeed, been tribes where the productive inferior- 
ity of the female has led to the murder of infants of that sex,but 
this has never been carried far enough to sensibly reduce the 
natu}-al proportion of the sexes.* In general, the requirement of 
women as comi:)anions for men has been sufficient, even among 
the most bloodthirsty and inhuman of races, to protect them 

*In a noimtil populalioii, the birllis of females slightly exceed those of 
males, iu the proportiou of lOo-S females to 100 males 



THE CHILD. 303 

against violence and to secure their participation in the fruits 
of the chase, of the fishery, of the flock, or of the tilled 
ground. 

We have, thus, the two earliest forms of the consumption 
of wealth, first, in the sustentation of the individual laborer, 
and secondly, in the maintenance of the wife, over and above 
her contribution, whatever that may be, to the joint support 
of the family. Let us suppose, for the further purposes of 
this discussion, that the production by the head of the family, 
increased by the wife's contribution, amounts to three and a 
half times what is necessary to support one adult person in 
health and strength to labor, and in physical comfort, accord- 
ing to the definition of that term already given. We have, 
then,~to be deducted from this amount the subsistence of 
both husband and wife. 

334. The Child.— IN'ow, we have to note the third great 
form of consumption, in the order of nature. The associa- 
tion of husband and wife is followed, in the vast majority of 
cases, by offspring. Races that are comparatively infertile, 
for what reason physiology cannot say with confidence, are 
known to history, and some such are to-day in occupation of 
portions of the earth's surface; while, among prolific races, 
are here and there found individuals who are sterile, from 
causes which physiology is equally unprepared to 
explain. The proportion of these exceptional cases among 
laboring populations is very small. We may, therefore, dis- 
regard them in our argument. 

The appearance of the child makes a new and imperative 
demand upon the revenue of the family. In the immediate 
instance, it diminishes the ability of the mother to render her 
accustomed services in the household and reduces her contri- 
bution to the joint income; then and afterwards, for a long 
time, it causes a steady draft upon the resources of the father 
in the way of food and clothing, if not of shelter and fuel. 

The demand thus made upon the family income is, within 
the limits of the father's ability, met, in general, fully and 
even cheerfully. It is not in obedience to the requirements of 
law, or because of any patriotic desire to make good the 



304 POLITICAL ECONOMY. 

members of the community, or contribute to the strength of 
the state, or, on the other hand, from the consideration that 
these babes may, after the lapse of years, themselves become 
producers, and possibly, in time, become his support in his old 
age, that the father unquestioningly gives up to his children 
all that margin of subsistence, which, as a single man, or, 
though in a less degree, as a married man without children, he 
might have enjoyed. It is in obedience to a purely individ- 
ual feeling, of an instinctive character, so generally planted 
in the human mind that, in spite of all instances of parental 
neglect or cruelty, we may speak of it as universal. 

Here we have the third form in which wealth is consumed. 
It will be remembered that, thus far, we have supposed nothing 
to be done with the wealth produced in the primitive commu- 
nity which has for its object display, luxury, or even the grat- 
ification of appetite beyond the actual requirements of 
subsistence. The wealth produced is applied strictly to the 
support, first, of the productive laborer, secondly., of the wife, 
taken in obedience to a natural craving Avhich may be termed 
a universal instinct of mankind, and, thirdly, of the children 
springing from that union. 

335. Children in Excess.— Let us suppose that with three 
children, of various ages, the subsistence which can be pro- 
A'ided by the head of the family is fully taken up. These five 
persons, male and female, old and young, consume all that can 
be produced, which we have assumed t-o be equal to the sus- 
tentation of three and a half adults. If, now, other children 
are to appear to claim a support at the hands of the husband 
and father, what will be the result ? Clearly, a reduction in 
the standard of living. There will no longer be food, cloth- 
ing, shelter and fuel adequate to maintain each and every 
member in health and strength, and Avithout pain or discom- 
fort resulting from deprivation of things needful. The new- 
comers will, indeed, under the impulse of the parental instinct, 
be admitted to an equal participation in the family income; 
but the share of each member of the family will be diminished. 
The pinch may come earliest and most severely at one point 
rather than another; food may be denied, or fuel, or clothing. 



OVER.POPULATION. 305 

or shelter, according to circumstances; but, in one way or 
another, something less than what is necessary to maintain 
the members of the family in health and strength and comfort, 
is supplied. Of this the effects may be grouped in three 
forms: first, the reduction of vital force and labor power; sec- 
ondly, the diminution, perhaps the disappearance, of the sub- 
sistence-fund heretofore laid up against the occurrence of bad 
seasons or the disability of the head of the family through 
accident or sickness, thirdly, the generation of infirmities and 
diseases of a transmissible character. 

336. The Effort of Nature to Restore Equilibrium.— Now 
let us, further, suppose this increase in the number of chil- 
dren beyond the limits of subsistence to have taken place uni- 
formly throughout the tribe occupying the geographical 
division assumed for the purposes of this discussion, but to 
have taken place once for all, not from a persistent but from 
a purely transient cause, will there be any effort of nature to 
restore the condition of general health, strength and comfort, 
or absence of discomfort, which has been for the time lost 
through population trenching uj)on the limits of subsistence ? 
It is, indeed, true that nature will make an effort, first, through 
disease, which will have a greater destructive power upon an 
ill-sustained than upon a well-sustained community, especially 
in the case of children and of the aged; secondly, through an 
impairment of the reproductive power of the adult ; and, 
thirdly, through famine breaking upon a population whose 
store laid up against drought or flood or fire or the ravages 
of insects, has been, once for all, eaten up. But this effort of 
nature will be unequal to the work to be done. The history 
of a thousand tribes shows that there is not sufficient force in 
famine or disease to prevent the permanent reduction of a 
community, through excess of numbers, from a condition of 
physical well-being to one of inadequate subsistence with con- 
sequent impairment of vital force and labor power, while yet 
the population suffering this permanent injury remains capable 
of maintaining or even increasing the numbers whose excess 
has caused the result described. 

337. Solidarity of the Family.— Of late yeai's, with the 
20 



306 POLITICAL ECONOMY. 

growing interest in biological investigation, there has been 
manifested a disposition, in certain quarters,to glorify privation, 
if not famine, as agents in the npliffring of the human condi- 
tion, the doctrine of the " survival of the fittest " being applied 
to societies of men without due consideration of a most impor- 
tant difference existing between men and other species of ani- 
mals, and the still wider difference, in the same direction, 
existing between men and plants. It is the solidarity of the 
family which prevents the law of the survival of the fittest 
from exerting that power in raising the standard of size and 
strength and functional vigor among men, which it exerts 
throughout the vegetable and the animal kingdoms, generally. 
In the vegetable kingdom I suppose there are no traces of this 
solidarity of parent and offsi^ring, although not being a botan- 
ist I cannot speak with assurance. In the animal kingdom, 
exclusive of man, the solidarity of the family exists, indeed, 
but to a limited extent only, and for a brief period. The 
mother j)rotects and nourishes her offspring most sedulously 
and devotedly; drains her life blood for its support, and will 
die in its defence; but, in general, when the offspring is 
weaned the connection is broken; the lives become separate; 
the young one must thereafter be its own provider and pro- 
tector; mother and child become competitors for food in the 
same field or forest; may even tear and kill one another in the 
struggle for existence. Thus the principle of the survival of 
the fittest obtains leave to operate. If the conditions of exis- 
tence become hard, if subsistence is inadequate, the weak, the 
deformed, the sick, are run over, trampled on, killed out, 
Avhile the fittest survive, acquire all the nourishment which is 
to be had anywhere around them, grow continually larger and 
stronger with freer nourishment, breed only among themselves, 
and thus the standard of size and strength rises from genera- 
tion to generation. 

With man, however, the conditions of the struggle for exis- 
tence are greatly changed. Generally speaking, that struggle 
is between families as units, not between individuals. Within 
the family, the young and old, the weak and the strong, male 
and female, are bound together by natural instincts, which are 



SOLIDARITY OF THE FAMILY. 307 

loo strong for pain, for hunger, for death itself. If want or 
famine pinch, all suifer together. So far as any preference 
is given, it is to the younger and the weaker. The parent 
denies himself that the cries of the child may be hushed. If 
one member of the family fall sick, instead of being neglected, 
or even trampled on, as among the lower order of animals, he 
commands the tenderest care of all, while none has a right to 
anything as against the sufferer. This, clearly, is not a con- 
dition under which the principle of "the survival of the 
fittest," however fierce may be " the struggle for existence," 
can operate among men, to raise the standard of size and 
strength and functional vigor, as it so surely does among the 
lower orders of animals. Instead of the natural elimination of 
the weakest and the worst, it is here the best who from sexual 
or parental love, bare their breasts to receive the blows of 
fortune.* 

We see, then, that the solidarity of the family, in the case 
of man, defeats the effort of nature, which is so successfully 
made throughout the vegetable kingdom and throughout the 
animal kingdom exclusive of man, to restrict the members of 
any species within limits which are consistent with ample nour- 
ishment and the full perfection of the type, and even to allow of 

*I am compelled, therefore, to dissent from Mr. Bagehot's view that in 
early states of civilization, "there is a kind of parental selection" operat- 
ing in the way of preserving the most robust and promising children, 
and tending to advance the general vigor of the family and of the tribe. 
Doubtless there have been communities fanatically devoted to war and 
conquest, like the Spartans in Europe within historical times, like many 
nomadic and wandering tribes of Asia, to whom crippled or infirm child- 
ren would have been an almost impossible burden; but I do not believe 
that this cause has operated, take the face of the world together, very 
widely, or has been a powerful factor in promoting the progress of man- 
kind, at least after the state of pure savagery has ouce been passed. 
Undoubtedly, as between weak families and strong ones, between weak 
tribes and strong ones, the principle of selection has worked with tre- 
mendous power, to secure the survival of the most prudent, the most 
frugal, the most brave, temperate and subordinate, and thus to advance 
the race in physical, economical and social power. But all that has been 
said in the text about the solidarity of the family, I believe to be per- 
fectly true, when broadly taken. 



308 POLITICAL ECONOMY. 

the gradually progressive development of the species in the 
direction of greater size and strength and functional activity. 
On the contrary, we may have, in the case of any tribe of 
men, a reduction effected abruptly or gradually in the condi- 
tions of subsistence, without any adequate effort of nature 
to resist the downward movement or to remedy the resulting 
injury to the vital force or the labor force of the country. 

338. The Capabilities of the Procreative Force.— We have 
thus far enquired respecting the effects of an increase of the 
number of children in any community beyond the limits of sub- 
sistence, assuming for the moment the increase to be due to 
purely transient and adventitious causes. How is it as to the 
degree of activity and persistence in the procreative force, in 
the presence of a threatened reduction in the standard of liv- 
ing below the point of health, strengtu and freedom from dis- 
comfort ? 

But, first, of the reproductive capability of mankind. It 
is evident that the mere fact of children being born to parents 
does not, of itself, insure or threaten any increase of numbers 
from generation to generation. With the limits set to human 
life by the constitution of things, reproduction in a certain 
degree may be only sufficient to make good the continual loss 
by death, and it may be even less than is necessary to this 
end. Hence we must enquire what is the normal relation 
between births and deaths. 

In his celebrated treatise on Population, Mr. Malthus 
assumed a birth rate sufficient to jdeld, in spite of celibacy 
and exceptional sterility, in excess of four children to a family. 
There is reason to believe that in any colony of European 
blood, planted on new land, of reasonably salubrious quality, 
within the temperate zone, this rate of increase would invaria- 
bly be reached, and, in the vast majority of cases, would be 
far exceeded. That rate of reproduction alone, however, would 
be sufficient to secure an appreciable increase of each genera- 
tion over the one preceding, were the facts of infant and of 
adult mortality but moderately favorable to the growth of 

population. 

339. Geometrical Progression.— Now, if we may assume for 



GEOMETRICAL INCREASE OF POPULATION: 309 

the mem'bers of successive generations an undiminished degree 
of fecundity, we have here all the conditions of a geometrical 
progression. And the possibilities of geometrical progression, 
when persisted in for a long time, become simply tremendous, 
whether in population, in wealth, or in any other direction. 

What is the characteristic of geometrical, as contrasted with 
arithmetical, increase ? It is that, in the former case, the increase 
itself ijicreases : the fecundity of the original stock is trans- 
mitted through all that is successively derived from it. Thus, 
to take a series of ten terms we might have 

Arithmetical : 2, 4, 6, 8, 10, 12, 14, 16, 18, 20. 
Geometrical : 2, 4, 8, 16, 32, 64, 128, 256, 512,1024. 
Here, in the arithmetical series, the difference between the ninth 
and tenth terms is the same as that between the first and sec- 
ond, viz., 2. In the geometrical series, the difference between 
the first and second series is, also, 2 ; while, between the ninth 
and the tenth, it is 512, It would require more than five hun- 
dred terms to carry the arithmetical series to the point which, 
in the geometrical series, is reached in ten terms. It would 
require more than a million terms to carry the former series 
to the point reached by the latter in twenty-one terms. 

These tremendous leaps in the geometrical series, are due to 
the fact that the increase between the first and second terms 
becomes itself the cause of a proportional increase between the 
second and third terms ; which increase, in turn, becomes the 
cause of corresponding increase between the third and fourth, 
and so on to the end. Whereas, of the arithmetical series we 
may say that the entire increase conies out of the original 
stock, which continues to j)ropagate at a constant rate, while 
all the successive increments so produced remain barren. 

340. Population Increases by Geometrical Progression.— 
Now it is according to the former and not the latter law, that 
population increases ; and, as we said, the consequences of a 
persistence in a geometrical ratio, through a considerable period 
of time, are simply tremendous. " The elephant," says Mr. 
Darwin, " is reckoned the slowest breeder of all known animals, 
and I have taken some pains to estimate its probable minimum 
rate of natural increase. It will be safest to assume that it 



310 POLITICAL ECONOMY. 

begins breeding when thirty years old, and goes on breeding 
till ninety years, bringing forth six young in the interval, and 
surviving till one hundred years old ; if this be so, after a 
period of from seven hundred and forty to seven hundred and 
fifty years, there vrould be alive nearly nineteen million ele- 
phants descended from the first pair /" 

Man, though a slow breeder, as comjjared with many of the 
lower animals, has a rate of reproduction far exceeding that 
of the elephant. Population has shown the capability, over a 
vast extent of territory, on more than one continent and through 
considerable periods of time, of doubling once in twenty-five 
years. With this capability we may say that if "neither evil, 
nor the fear of evil " checked the population of the United 
States, it would, in a century and a-half, amount to three thou- 
sand two hundred millions. Of course such a consummation 
could never be reached. Such a population would be impos- 
sible under the conditions of human existence. Long before the 
middle term of that jDeriod had been reached, disease, infanti- 
cide, famine and internecine war would intervene to restrain 
the increase of numbers. 

341 . The Persistence of the Procreative Force.— Such being 
the caj)abilities of the procreative force, when operating unre- 
strained, let us inquire what virtue there is in the fear of a 
reduction of the standard of living below the point of health 
and physical comfort to check population at that line. 

It is commonly assumed, in discussions relating to wages, 
that the laboring class will more and more withhold their 
increase as the conditions of life become harder and hai'der; 
and that any economic injuries which they may suffer, from 
whatever cause, will, in the order of nature, be in this way 
repaired. Instead of it being true, however, that the laboring 
class tend thus to resist and resent any lowering of the stand- 
ard of subsistence, the fact is that never is the procreative 
force more active than when the conditions of life become 
meagre and squalid; when the reserve of the summer against 
the winter, and of the good year against the bad, is swept 
away by the clamorous necessities of to-day; when ahke en- 
joyment of the present and hope for the future are at their 



MISERY TENDS TO OVER-POPULATION. 311 

lowest iDoint. Kever had the marrying age been earlier,* or 
christenings more frequent in Ireland, than when, just upon the 
verge of the great famine, Earl Devon's Commission, in 1844, 
thus described the condition of the peasantry : " In many dis- 
tricts, their daily food is the potato; their only beverage, 
water ; their cabins are seldom a protection against the 
weather; a bed or a blanket is a rare luxury; and, in nearly 
all, their pig and manure heap constitute their only prop- 
erty." 

The state of the population of India and China affords a 
conclusive proof that there is not sufficient virtue in economic 
forces to keep population above the plane of extreme misery, 
if once it falls below the plane of comfort and decency of 
living. On the contrary, a moral weakness or recklessness is 
induced which tends strongly and swiftly to carry population 
to the point of industrial distress. Then, indeed, famine 
makes its aj)pearance, as periodically in India,f to set bounds 
to increase of numbers; but, for the reasons that have been 
stated, this force does not operate, as in the animal kingdom 
exclusive of man, to cut off only the least active, aggressive, 
intelligent, or self-reliant. The effect of famine, and of the 
diseases generated by famine, operating upon population 
across the barrier imposed by the solidarity of the family, is 
to lower the physical tone, to taint the blood, and weaken the 
will-power of the entire body, making it increasingly difficult, 
from generation to generation, to restore the lost conditions 
of economic well-beinar. 



* Su- Arclj. Alisoa speaks of the Irish peasantry before the Famine as 
"almost always" marrying at eighteen, and not infrequently becoming 
grandfathers at thirty-four. 

t During the past 22 years there have been five periods of distress in 
India, reaching the pitch of famine. Formerly incessant wars kept 
down the population of India; but since British dominion has imposed 
peace upon its hundred tribes, famine lias taken the place of war. in lim- 
iting population. 



313 POLITICAL ECONOMY. 

CHAPTER II. 

THE APPEARANCE OF NEW ECONOMIC AVANTS. 

342. An Ascending Scale of Personal Consumption.— We 

have thus far dwelt on the effects of an increase of numbers 
beyond the limits of subsistence, as the latter are determined 
by the law of diminishing returns in agriculture. We have 
seen that as the procreative force increases rather than dimin- 
ishes, in the face of poverty and squalor, there is no natural 
resting place for population, if once it passes below the plane 
of ample subsistence, until it reaches the point Avhere it meets 
the " positive checks " of famine and disease and, it may be 
added, of war.* This principle of population, to which we 
give the name, MaUhusianism, was first clearly enunciated 
and fully illustrated by Mr. Malthus, in the last year of the 
last century, although intimated m the writings of earlier 
economists, especially of the Italian Ortes, 

Let us now consider the relations of subsistence and popula- 
tion, on an ascending scale of personal consumption. We 
have seen that population will go on increasing as fast and as 
far as food is provided to support it, all increase of wealth 
surely taking the form of an increase of numbers, unless other 
and more imperative demands are made upon the income of 
the family. But let us suppose that, at the jjoint where a 
competent subsistence is provided to maintain the whole popu- 
lation in health and strength to labor, and in freedom from all 
discomfort resulting from privation of things absolutely 
necessary, the want of something beyond this comes to be 
strongly felt by the individual members of the community.f 

* "It is impossible," says Senior, "that a positive checlc so goading 
and remorseless as famine, should prevail "without l)riuging in her train 
all the others. Pestilence is her uniform companion, and murder and 
war are her followers." 

f "The much greater number and the longer continuanceof his wants," 
says Prof. Roscher, " arc amongst the most striking differences between 
man and the brute. While the lower animals have no wants but neces- 
sities, and while their aggregate wants, even in the longest series of genera- 



EARL V ECONOMIC DESIRES. 313 

343. Diversity of Early Economic Desires.— What tliat 
want may be does not matter for the purposes of the present 
discussion; and, indeed, it would not be likely to be the same 
in the case of all communities. In one, the first want felt, after 
the absolute requirements for the support of life and laboring 
power are satisfied, is of ornament and decoration. Even when 
men are hardly covered from the cold and scantily nourished, 
the passion for display makes its appearance in forms that are 
ludicrous enough to the eye of the civilized man, but which 
have a most serious meaning to the barbarian and engross 
his faculties as completely as widely different objects do the 
faculties of the Parisian. In another community, the first 
want felt after the claims of immediate bare subsistence are 
met, is of a store for the future and a provision against the 
caprices of the seasons and the casualties of life. Just as the 
ant — the ant of fable, at least, if not of the naturalist — differs 
from the butterfly, so have certain tribes of men, in the earli- 
est condition to which we can trace them, differed from others 
in this respect of care for the coming time. The first want 
emerging in the life of another community may be of wealth 
to be expended in worship and in honor of the national or local 
deity. Millions of men may consent to live squalidly that a 
few temples may shine like the sun, their altars smoke with 
unending sacrifices, their priests walk resplendent with, em- 
broidered and jewelled vestments. In still other communities, 
the new want may take the form of a love, no longer of 
ornament, but of comely dress, or of desire for a diversi- 
fied diet, or of a taste for leisure, or of a craving for 
some costly drug or drink, like the opium of the East Indian 
and the Chinaman or the fire water of the North American 
Indian. 

Writers on economics have, indeed, endeavored to establish 
something like an order of natural succession for the various 
wants emerging in human experience; thus Prof. Senior says 

lions, admits of no qualitative increase, the circle of mau's wants is 
susceptible of indefinite extension. And, indeed, every advance in 
culture made by man finds expression iu an increase in tlie number and 
in the keenaesa of his rational wants." 



3U POLITICAL ECONOMY. 

that man's " first object is to vary fiis food," " the next desire 
is variety of dress," " last comes the desire to build, to orna- 
ment and to furnish;" but I deem it more consonant with 
what is known of communities having, whether from the 
oppression of excessive numbers, or from backwardness in the 
mechanic arts, only a small margin of living, to hold that the 
appearance of economic desires, beyond the need of bare 
subsistence, is governed by the moral and social characteristics 
of each race or tribe of men. 

344. Economic Wants Antagonize the Procreative Force. — 
But Avhatever be the passion or desire which is first developed 
in the mind of any community, it makes a demand upon the 
existing body of goods or upon the current production of 
wealth, which at onco antagonizes the strong and urgent dis- 
position which has been indicated, to the consumption of 
wealth for the supjjort of an increasing population. The 
newly awakened passion or desire can not be gratified out of 
the existing fund of wealth, unless the procreative force 
receive a check. Whether this shall be done or not, is a 
question upon the answer to which depends the whole eco- 
nomic future of the community. 

Any economic want may act in restraint of population in 
one or more of three ways: first, by diminishing the numbers 
of the marrying class, inducing celibacy among those who do 
not find the way to obtain an income adequate to the support 
of a family; secondly, by procrastinating the period of mar- 
riage; and, thirdly, by diminishing the birth-rate within tlie 
married state. The forces which operate in restraint of pop- 
ulation, may take anyone of these three ways, or take them 
all, in which latter case the reduction of the ratio of increase 
will be very marked. If, for example, the number of married 
pairs in a given community were brought down from 100 to 
80, by the spread of celibacy; if, through later marriage^, the 
child-bearing period for each married pair were reduced from 
twenty years to fifteen, and if the interval between births 
were extended from two years to three, the number of chil- 
dren born under the latter state of things would be, to the 
number born under the former state, as 40 to 100. 



A DIVERSIFIED DIET. 315 

345. A Diversified Diet. — Whatever be the want most com- 
monly felt, after the requirements of mere subsistence are met, 
there can, 1 think, be no question that the want which has been 
efficient on the largest scale, at once in promoting labor for its 
gratification, and in restricting the increase of population, is 
che craving for a diversified diet. Once let the traditional 
sole diet of the barbarian, be it fish, or flesh, or grain, be 
crossed with some other species of food, exciting thus the 
pleasure which resides in variety, and an economic force has 
been introduced into the life of the community which is caj)a- 
ble of producing mighty results. 

Without claiming to speak with authority as a student of 
sociology, I should say that this has been the lever by wliich 
more tribes and races of men have been raised and kept, one 
degi'ee, at least, above the condition of a population pressing 
all the time, at all points, upon the limits of subsistence, than 
by any other. 

A diversified diet, although doubtless it contributes, in a 
degree, to health and vigor, is yet a pure luxury in the sense 
that it is never sought on the former account, but wholly 
because of the gratification of appetite thereby secured. It 
will seem strange to those who have not studied the question of 
population, that an appetite for objects of pure luxury should 
be spoken of as having greater power to overcome the disposi- 
tion to indolence and the disposition to excessive procreation, 
than the fear of privation and actual misery. Yet so it is; and 
as we go up the scale of human wants and desires, as viewed 
by the moralist, we shall find that, in general, the higher the 
want or desire, ethically considered, the stronger it proves to 
be, until we see mere sentiments, involving no gratification to 
any bodily sense, im2')elling men to exertions the most painful 
and protracted, and holding sternly in check the most master- 
ful passion of the human kind, that passion which defies 
abject physical want and laughs in the face of famine and 
pestilence. 

346. Decencies.— Of a narrower range in its ap]3lication to 
tribes and races of men than the desire of a diversified diet, but 
of far greater intensity and persistency within that range, is 



316 POLITICAL ECONOMY. 

the desire of what we may call decencies, meaning thereby 
those things which are prescribed or required by the public 
opinion of the community. It is evident that the term decen- 
cies, in economics, must have a very various application to 
different communities and to different classes within the same 
community. 

" The question whether a given commodity is to be considered 
as a decency or a luxury, is obviously one to which no answer 
can be given, unless the place, the time and the rank of the 
individual using it be specified. The dress which in England 
was only decent a hundred years ago, would be almost extrav- 
agant now; while the house aiid furniture which now would 
afford merely decent accommodations to a gentleman, would 
then have been luxurious for a peer. 

" The causes which entitle a commodity to be called a neces- 
sary, are more jjermanent and more general. They depend 
partly upon the habits in which the individual in question has 
been brought up, partly on the nature of his occupation, on 
the lightness or severity of the labors and hardships that he 
has to undergo, and partly on the climate in which he lives. 

" Shoes are necessaries to all the inhabitants of England. 
Our habits are such that there is not an individual whose 
health would not suffer from the want of them. To the lowest 
class of the inhabitants of Scotland they are luxuries. Cus- 
tom enables them to go barefoot Avithout inconvenience and 
without degradation. When a Scotchman rises from the 
lowest to the middling classes of society, they become to him 
decencies. He wears them to preserve, not his feet, but his 
station in life. To the highest class, who have been accus- 
tomed to them from infancy, they are as much necessaries as 
they are to all classes in England. 

"To the highest classes in Turkey, wine is a luxury, and 
tobacco a decency. In Europe, it is the reverse. The Turk 
drinks and the European smokes, not in obedience but in opposi- 
tion both to the rules of health and to the forms of society. But 
wine in Europe and the pipe inTurkey are among the refresh- 
ments to which a guest is entitled, and which it would be as 
indecent to refuse in the one country as to offer in the other. 



DESIRE OF DECENCIES. 317 

"A carriage is a decency to a woman of fashion, a necessary 
to a physician, and a luxury to a tradesman."* 

347. The Desire of Decencies the Great Preventive Check 
to Population.— Whatever dignity the moralist may assign to 
the disposition to conform to the prevailing sentiments of the 
community, either by doing that which is prescribed by public 
opinion, or by shunning that which public opinion reprobates, 
the economist must recognize this as the most effective motive 
Avhich oiDcrates either to urge men to labor for the production 
of wealth, or to check the increase of population after the 
condition of " diminishing returns " has been reached. It is in 
the latter respect that we have here especially to do with it. 
" The great preventive check," says the wise-economist so oft 
quoted in this chapter, " is the fear of losing decencies." If 
by this is to be understood the check which is of greatest 
potency where it ojaerates at all, the remark is perfectly just. 
But, in fact, it is oxAj in few communities that this cause ope- 
rates with sufficient force to restrict j^opulation within the 
limits of the highest per-capita production. In England, it 
has for generations been found adequate throughout the noble 
and wealthy classes ; but among the working classes reproduc- 
tion has gone on with the least possible regard to its effect upon 
the standard of living. In France, on the other hand, even 
the peasantry are so fully alive to the inexjjediency of a rapid 
multiplication, and are so temperate and prudent, that the 
excess of births over deaths has been reduced to a minimum. 
Doubtless the pojmlar tenure of the soil in that country con- 
tributes directly and powerfully to this result. In the States 
of the American Union, the increase of population was, until 
recently, everywhere encouraged by the fact that the country 
had not reached the condition of diminishing returns, but, on 
the contrary, as is always the case before that condition is 
reached, foreign immigration and native growth in numbers 
alike added to the power and wealth of the sevei'al communi- 
ties. Within the past twenty-five years, the rate of natural 
increase in the Northeastern States has encountered a decided 

* N. W. Senior. 



318 POLITICAL ECONOMy. 

clieckj due to a rising standard of living in communities whose 
productive capabilities were already well developed; and, were 
it not for tlie newly-arrived foreign residents, the annual 
excess of biiths ovei deaths in this section would be but 
slight. 

348. Attacks Upon the Doctrine of Malthus.— The views 
respecting the relations of population and subsistence contained 
in the foregoing paragraphs are essentially those which are 
known as Malthusian. Mr. Malthus unquestionably committed 
some errors of statement and faults of reasoning m his orim- 
nal enunciation of the principles of population, as is likely to 
be the case on the first promulgation of great economical or 
social laws; and during his whole life he was closely followed 
up by criticism and abuse. Since Mr. Malthus' death has 
taken all personal interest out of the controversy over the 
principles of population, and Malthusianism has come to be 
merely a name for a body of doctrine, the views here pre- 
sented have been a butt for the headless arrows of beginners 
in economics and of sundry sentimental sociologists. The 
amount of cheaj) wit and cheaper logic* which has been 
expended on this theme gives the student of the principles of 
jDopulation a new idea of the capabilities of the human intellect. 

Meanwhile the doctrine that there resides in nearlj^ all 
races and tribes of men a strong, urgent, persistent disposi- 
tion to carry the increase of j^opulation beyond the limits of 
adequate subsistence; that very few, even among the noblest 
of modern communities, have shown the capability to check 
reproduction at the line of the highest per-cajjita production 
of food, clothing, shelter and fuel; that, if this line be once 
over-passed, the procreative force jsroceeds thereafter with aug- 
mented force; that, if the desire of luxuries and decencies 
does not prevail to stop the increase of population, the fear of 

*A favorite answer lo Malthus, for the past eighty years, has consisted 
in pointing to vast tracts of unoccupietl lands in the Mississippi Valley, 
in Texas, or in Australia. As if tliose lands mattered aught to the Imn- 
dreds of millions of Chinese or East Indians who were unable alike to 
extract a decent livelihood from their own overcrowded and overwrought 
soils, or to find the means to go elsewhere. 



MALTHUSIANISM. 319 

losing necessaries, and even the actual experience of priva- 
tion and suffering almost certainly will fail to do so; that, 
through the dominion of this imperious instinct, neai'ly all 
communities of men are under the constant imminence of 
being swept away into misery, squalor and disease, as the 
result of excessive population, if not into famine, pestilence 
and internecine war, as the sole means of relieving the over- 
burdened earth, this doctrine which we term Malthusianism 
has stood unshattered, impregnable, amid all the controversy 
that has raged around it. 

349. Prof. Senior's Statement.— I cannot forbear again to 
quote this eminently wise economist, so often already quoted in 
these pages, to whose criticisms, indeed, Mr. Malthus owed 
the correction of some of the faults of his original statement 
of the principles of population. Prof. Senior says : 

"Although we believe that, as civilization advances, the 
pressure of pojDulation upon subsistence is a decreasing evil, 
we are far from denying the prevalence of this pressure in all 
long settled countries; indeed, in all countries except those 
which are the seats of colonies applying the knowledge of an 
old country to an unoccupied territory. 

" "We believe that there are few portions of Europe the 
inhabitants of which would not be richer if their numbers were 
fewer, and would not be richer hereafter if they were now to 
retard the rate at which their population is increasing." 



CHAPTER III. 

CONSUMPTION : THE DYNAMICS OF WEALTH. 

350. The Potato Philosophy of "Wages.— We have, thus far, 
spoken of economic wants, mainly in their effects as retarding 
the increase of numbers. Until an adequate check, of a suffi- 
ciently persistent character, has been secured here, the econo- 
mist who fully appreciates the consequences of over-popula- 
tion can hardly fail to recognize almost every economic want, 



320 POLITICAL ECONOMY. 

whatever its origin or its object, and however little either may- 
be approved by the moralist or physiologist, as being better 
than none. 

It has been from this point of view, that the English 
writers liave insisted so strongly that cheap food, which one 
would surely think an economist would apjDrove, as leaving 
means for expenditures of a higher character, is, on the contrary, 
a thing to be deprecated. 

Thus Mr. J. R. McCulloch says ;— " When the standard of 
natural or necessary wages is high — when wheat and beef, -for 
example, form the principal part of the food of the laborer, 
and porter and beer the principal part of his drink, he can 
bear to retrench in a season of scarcity. Such a man has 
room to fall ; he can resort to cheajDer sorts of food — to 
barley, oats, rice and potatoes. But he who is habitually fed 
on the cheajDest food has nothing to resort to, when deprived 
of it. Laborers placed in this situation are absolutely cut off 
from every resource. You can take from an Englishman ; 
but you cannot take from an Irishman. The latter is already 
so low, he can fall no lower ; he is placed on the very verge of 
existence; his wages, being regulated by the price of potatoes* 
will not buy wheat, or barley, or oats; and whenever, therefore, 
the supply of potatoes fails, it is next to impossible that he 
should escape falling a sacrifice to famine." 

And Prof. Thorold Rogers says: "A community which sub- 
sists habitually on dear food is in a position of peculiar ad- 
vantage, when compared with another which lives on cheap 
food, one for instance, which lives on wheat, as contrasted 
with another which lives on rice or potatoes; and this, quite 
apart from thepi'udence or incautiousness of the people." 

351. Better Things Than Dear Food.— Clearly, the basis of 
this reasoning is the Malthusian doctrine. These economists 

*Dr. Travels Twisa elates that it was calculated prior (o the fnmine, 
that two-lhiids of fho populalioQ of IrclMiid lived wholly on potatoes. 
The proportioiv is doiihtless now somewhat smaller. Sir Arch. Alison 
says: " Three times the number of perons can bo fed on an acre of 
potatoes who can be maintained on an acre of wheat in ordinary 
seasons." 



HIGHER ECONOMIC WANTS. 321 

recognize the strong probability, the almost certainty, that a 
people will carry their increase closely up to the limits of sub- 
sistence according to the kind of food they use, whatever that 
may be. If it be the lowest and cheapest, like rice in India and 
potatoes in Ireland, the failure of the crop means starvation, no 
adequate reserve being expected to be provided, on a sufficient 
scale, by the population of any country. If the kind of food be 
higher and dearer, the masses may, in the event of a failure 
of the crop or crops concerned, fall back for the time upon 
the lower and the cheaper. 

But suppose this danger of an increase of numbers, 
fast following up subsistence, crowding all the time 
upon the limits of food, pressing always on the verge of 
famine, to be once for all passed; suppose we have a commu- 
nity which will accept the opportunity of living upon cheap 
food and apply the saving in annual consumption which is 
effected thereby, to the permanent enlargement of their capi- 
tal, or to other forms of enjoyment, to dress, to better 
lodo-ings, to luxuries, perhaps to expenditures upon education 
and culture, what harm, then, would Mr. McCulloch or Prof. 
Rogers find in cheap food, be it potatoes, or rice, or the Indian 
corn of America ? Surely none. The more is saved from the 
cost of food, the more can be spent upon making homes 
ample and comfortable, healthful and decent, the more can be 
spent upon school-houses and churches, upon books and 
periodicals, upon literature and music and art ; the wife may 
be let to stay at home and keep the house; the children be 
given their time, to acquire an education and to secure for 
themselves a thorough preparation for their work in life. 

Let me not be understood as quarreling with this potato 
philosophy of wages so far as the assumption which underlies 
it, viz., that population will inevitably keep close up to the 
Hmits of subsistence on the kind of food, wdiatever that may 
be, which forms the popular diet, is justified by the facts of 
human society, as it very widely, indeed, almost universally, 
is. I only claim that in any country whose people had shown 
the capability of setting bounds to the increase of population 
by the exercise of their own judgment and Avill, instead of 
21 



323 POLITICAL ECONOMY. 

allowing those bounds to be set by privation and disease 
alone, cheap food would become a means of increasing the 
comfort and luxuries enjoyed by that people in other directions 
of expenditure, or of enlarging the capital and improving the 
jiroductive agencies at their command. 

352. The Dynamics of Wealth. — As a means of checking 
the increase of numbers, which otherwise would surely carry 
population to the point of misery, famme and pestilence, the 
appearance of almost any economic want must be greeted by 
the economist as an economic good, without much respect to 
the origin or object of that want. But the moment the cajja- 
bility of the self -limitation of population is assured, the econ- 
omist discovers wide diiferences between the various demands 
for the consumption of the existing body of wealth, made by 
the differing appetites and desires of different communities, or 
of different classes in the same community, as regards the 
influence of those various forms of consuming wealth upon 
the power and the disposition to create values in the future.* 

It is here we find the body of economical literature most 
deficient. We need a new Adam Smith, or another Hume, 
to write the economics of consumption in w^hich would be 
found the real Dynamics of Wealth; to trace to their effects 
upon production the forces which are set in motion by the 
uses made of wealth; to show how certain forms of consump- 
tion clear the mind, strengthen the hand and elevate the amis 
of the individual economic agent, while promoting that social 
order and mutual confidence which are favorable conditions 
for the complete development and harmonious action of the 
industrial system; how other forms of consumption debase 

* When we remember that the expenditure of the people of Great 
Britain, annually, for alcoholic beverages, reaches the enormous sum of 
£180,000,000, or $900,000,000, four-fifths, at least, of wliich is spent hi 
away that is not only without any beneficial effect, but is positively 
injurious, a large part of it going to the absolute destruction of moral, 
intellectual and physical power, while the aggregate expenditure of the 
kingdom for the purposes of elementary education is but a minute fraction, 
perhaps not seven per cent., of this, Ave get a rude measure of the force 
which a wiser consumption of wealth might introduce into the economic 
life of that country, 



' ' VER-PROD UCTION. " 333 

and bebauch man as an economic agent, and introduce dis- 
order and "waste into the complicated mechanism of the pro- 
ductive agencies. Here is the opportunity for some great 
moral philosopher, strictly confining himself to the study of 
the economical effects of these causes, denying himself all 
regard to purely ethical, political or theological considerations, 
to write what shall be the most important chapter of political 
economy, now, alas, almost a blank. 

353. Two Popular Fallacies Concerning Consumption- 
— In a preceding chapter,* we discussed the question, how it 
is that there can be at any time, abounding natural resources, 
unemployed labor power, unemployed capital power, no lack 
of disposition on the part of the owners of capital to secure a 
return from the productive use of their property, no lack of 
disposition on the part of laborers to earn wages by work, 
and yet an enforced idleness with resulting poverty and 
squalor. Two po2:)ular explanations of this condition of 
things are always sure to be offered during the continuance of 
" hard times," one of which finds its expression in the sounding 
phrase, " over-production," while the other emphasizes its suj)- 
posed antagonism to the theory of the over-productionists, 
by the use of the term "under-consumption." 

A brief reference to the conditions under which wealth is 
produced, will sufiice to show that, like all condensed 
phrases, each of these large words signifies more than one 
thing; that, in certain senses, each phrase embodies a great 
deal of arrant nonsense; that, taken otherwise, each embodies 
a vital truth; and, finally, that, so far as either means any- 
thing at all, that meaning is exactly identical with what is 
expressed by the other. 

354. Over-production.— All producers are also consumers. 
Men produce only because they desire to consume. They pro- 
duce only so much as they desire to consume. It is true that 
any given producer may desire to realize his enjoyment either 
now, or at a future time ; either in satisfying his own personal 
wants and appetites, or in satisfying those of friends, children, 

* Paragraphs gl7 to 334. 



824 POLITICAL ECONOMY. 

or beneficiaries. But tlie instances of deferred enjoyment 
may be trusted to average themselves from year to year, and 
from generation to generation. 

The idea of over-production, therefore, involves the absurd- 
ity of supposing that men will labor to produce that which 
they have not the desire to consume. 

But passing over this initial absurdity, we observe in the 
use of this phrase, a vague notion that the amount of neces- 
saries, comforts, and luxuries, whicli a community, at any given 
stage of its progress,is prepared to consume is a definite amount; 
and that if the amount produced is somewhat rapidly 
increased, the capacity for consumption wull be outrun, and 
men will stand, without appetite, before a mass of good things, 
for which they know no uses and with which they are, for the 
time, utterly at a loss to deal. 

The fallacy of this will sufficiently appear if we ask, not 
who are the men able and willing to make away with a vastly 
greater body of wealth than they find themselves in posses- 
sion of, but who are the men who would not be found willing 
and able to do this ? Is there any mechanic or laborer receiv- 
ing wages to the amount of $300 or |500 a year, who could 
not, and would not gladly, spend 6600 or $1,000 ? Is there any 
merchant or professional man or man of leisure, with an in- 
come of $3,000 or 15,000, or $10,000, who could not easily give 
account of an income of $6,000, or $10,000, or $;iO,Oo6 ? It 
is absurd to suppose that the limit of consumption can be 
reached. What with houses and horses, clothes, equipage, 
and travel, costly viands and drinks, anj^ civilized community 
could instantly double, quadruple, or decuple its consumption 
of wealth, were the wealth provided. 

355. Under-consumption.— In like manner, the phrase, 
under-consuniption, involves an initial absurdity, when applied 
in explanation of so-called "hard times." Thus, during the 
period of 1876-9, it Mas said that the people of the United 
States were suffering from under-consumption ; yet, not for 
a long period, if ever, had consumption followed so quickly 
upon production ; had the food eai-ned been so quickly eaten ; 
had the margin of saving been so small, as durujg the years 



' ' UNDER- CON SUMP TION. " 325 

referred to. A strange term, truly, to apply to such a condi- 
tion : this under- consumption. 

But passing by this initial absurdity, we find that beneath 
the phrase, under-consumption, lurks the notion that, some- 
how or other, wealth when once produced is in danger of get- 
ting in the way, so that other wealth cannot be produced until 
this be first eaten or drank or burned up, or by some means 
gotten rid of. As a matter of fact, there has never been any 
accumulation of wealth on the earth's surface so great as to 
impede the further production of wealth, and there is not 
likely to be. Were men willing to produce wealth Avithout con- 
suming it, they could go on forever without encountering any 
obstacle through the failure of consumption. Of course,men will 
not, in general, produce more than they desire, sooner or later, 
to consume ; but human appetites are not so weak that con- 
sumption may not safely be left to take care of itself. But 
the disposition of men to labor is not so strong and constant 
that no anxiety need be felt respecting the production of wealth. 

356. Over-production and under-consumption mean the 
same thing, and that is under-production. This is, of course, 
a mere jangle of words, until the phrases are qualified as they 
should be. Over-production, as alleged by those who Avould 
explain hard times, is partial over-production, production, that 
is, which has gone on in certain lines, generally under specula- 
tive impulses, until it has exceeded the normal, or even, possi- 
bly, a highly stimulated demand. This excess of supply in 
certain lines leads to the accumulation of vast stocks of unsal- 
able goods, which is partial under-consumption, these stocks 
melting slowly away through a period extending over months, 
it may be, years. Meanwhile, under-production is the result. 
The bodies of labor and capital which have been called into 
the over-done branches of industry, cannot readily, if at all, 
be transferred to other branches ; they remain where they are, 
half employed, waiting for the renewal of demand. In the 
dreary interval, producing little, they have little with which to 
purchase the products of othei-s, who are consequently com- 
pelled to restrict their production proportionally, as was 
shown in pars. 219-224. 



326 POLITICAL ECONOMY. 

In this way it is we vindicate our j)aradox that over-produc- 
tion means nothing more or less than under-production, Phei'e 
is no over-production possible, except a partial over-production, 
an over-jDroduction in certain lines, which inevitably involves 
a lowering of the scale of production as a whole : that is, 
partial over-jjroduction involves general under-production. 

" It is under-production, not over-production or under-con- 
sumption, which makes hard times. General under-jaroduction 
is the real evil from which men suffer; is, indeed, the only 
economical evil from which men can suffer. 

"Over-production, general over-production, is imi^ossible, and, 
were it to occur, were the creation of wealth to outrun men's 
capacity to consume, no one would be injured thereby. But 
under-production is an unmistakable evil. It means less wealth 
produced, and consequently fewer of the comforts and neces- 
saries of life, on the average, to each member of the commu- 
nity. To large classes it means hunger, cold and squalor; 
debility, sickness and premature death. Let us then deprecate 
under-production; pray against it; perform sacrifices to avert 
it; but let us not talk about over-jDroduction or under-consuraj)- 
tion as the cause of hard times."* 

357. The Destruction of Wealth. — We have already ad- 
verted to the fact of the extensive destruction of wealth, by 
accident or by natural causes, as affording an explanation, in 
part, of the comj^aratively slow jirogress of accumulation, even 
in the states Avliose land power, labor 2:)0wer and capital power 
are greatest. We have now to deal with the same fact, in 
our theory of consumption. 

A most stubborn belief appears among the non-agricultural 
masses of every community where wages or labor or wealth is 
a topic of familiar discussion, to the effect tliat the destruction 
of wealth in some Avay increases production. Laboring people 
generally hold to this; our servants believe it religiously, and 
justify themselves, secretly or o]K>nly,for all their breakage and 
wastage by the plea that it "makes trade good." Even culti- 
vated persons are not free from an instinctive feeling that the 

* Walker: — Money, Trade and Industry. 



DESTRUCTION OF WEALTH. 327 

abrupt removal of the existing body of wealth quickens indus- 
trial activity and promotes the general welfare, though it 
may be at the cost, for the time, of individuals. 

Frederic Bastiat, in one of his capital little essays, has dealt 
with this notion so cleverly that there can be no excuse for any 
writer using his own phrases on this theme. 

358. The Broken Pane.— " Have you ever had occasion to 
witness the fury of the honest bui'gess, Jacques Bonhomme, 
when his scapegrace son has broken a pane of glass ? If you 
have, you cannot fail to have observed that all the bystanders, 
were there thirty of them, lay their heads together to oif er 
the unfortunate proprietor this never-failing consolation, that 
there is good in every misfortune, and that such accidents 
give a fillip to trade. Everybody must live. If no windows 
were broken, what would become of the glaziers ? Now, 
this formula of condolence contains a theory which it is 
proj)er to lay hold of in this very simple case, because it is 
exactly the same theory which unfortunately governs the 
greater part of our economic institutions. 

" Assuming that it becomes necessary to expend six francs in 
repairing the damage, if you mean to say that the accident 
brings in six francs to the glazier, and to that extent encourages 
his trade, I grant it fairly and frankly, and allow that you 
reason justly. 

" The glazier arrives, does his work, pockets his money, rubs 
his hands, and blesses the scapegrace son. This is what we 
see. 

" But if, by way of deduction, you come to conclude, as 
is too often done, that it is a good thing to break windows — 
that it makes money circulate — and that encouragement to 
trade in general is the result, I am obliged to cry, halt ! 
Your theory stops at what we see, and takes no account of 
what we clonH see. 

" We don't see that since our burgess has been obliged to 
spend his six francs on one thing, he can no longer spend them 
on another. 

" We donH see that if he had not this pane to replace, 
he would have replaced, for example, his shoes,- which are 



338 POLITICAL ECONOMY. 

down at the heels; oi* have placed a new book on his shelf. 
In short, he would have employed his six francs in a way in 
which he cannot now employ them. Let us see, then, how the 
account stands with trade in general. The pane being broken, 
the glazier's trade is benefited to the extent of six francs. 
Tliis is vj/iat v:e see. 

"If the pane liad not been broken, the shoemaker's or some 
other trade would have been encouraged to the extent of six 
francs. This is tchat we donH see.. And if we take into 
account what we don't see, which is a negative fact, as well 
as what we do see, which is a positive fact, we shall discover 
that trade in general, or the aggregate of national industry, 
has no interest one way or other, v^h ether windows are broken 
or not. 

"Let us see, again, how the account stands with Jacques 
Bonhomme. On the last hypothesis, that of the pane being 
broken, he spends six francs, and gets neither more nor less 
than he had before, namely, the use and enjoyment of a pane 
of glass. On the other hypothesis, namely, that the accident 
had not happened, he would have expended six francs on 
shoes, and would have had the enjoyment both of the shoes 
and of the pane of glass. 

" Now as the good burgess, Jacques Bonhomme, constitutes 
a fraction of society at large, we are forced to conclude that 
society, taken in the aggregate, and after all accounts of labor 
and enjoyment have been squared, has lost the value' of the 
pane which has been broken." 

359. Destruction Sometimes the Removal of Obstruction. 
— It is, of course, possible to conceive a situation where the 
destruction of wealth may have the direct effect to secure a 
larger production of wealth. Thus, a man may occupy a cer- 
tain water privilege with an antiquated mill, which he can not 
make up his mind to tear down. To destroy the mill seems 
to him like waste, or, even if he appreciates the fact that the 
erection of a new and more commodious mill, Avith modern 
appliances, on the site, would be true economy, he cannot 
bring himself to incur the initial expense just at this time; he 
procrastinates in the matter, and so perhaps goes on, year after 



DESTRUCTION OF WEALTH. 329 

year, cramped in his operations, perhaps unable even to under- 
take production in certain lines, for which there is an advantage- 
ous opening. Now, in such a case, it might happen that the burn- 
ing down of the old mill would lead to the immediate erection 
of a new one which would pay for itself in a short time, and the 
net result, thereafter, be the substitution of a powerful and effi- 
cient agent of production for one that was inadequate and 
outworn. 

Undoubtedly, too, the destruction by fire of the old and 
crooked parts of certain cities, filled with rookeries and tum- 
ble-down houses, almost impassable to traffic and repulsive of 
aspect, has led to an actual increase of wealth within a short 
time thereafter. The quarter destroyed may have been long 
a nuisance and an obstruction to the growth of the city and 
the development of its trade; but the inertia of property 
owners, their blmdness to their large, their j^ermanent inter- 
ests, their indisposition, either from apprehension or avarice, 
to make large ca|)ital expenditures, and esi^ecially the fact that 
it was of no use for a single property owner to try to improve 
the quarter by tearing down his rookeries and building hand- 
some and commodious structures, so long as the general char- 
acter of the neighborhood remained what it had been, these 
causes might have long Avithstood the needed improvements. 
The fire comes, resolves all doubts, burns up in an hour the 
accumulated foulness of hundreds of years, leaves the ground 
open to building, and six months or a year thereafter, a new 
and elegant quarter has ai-isen from the ashes. Not all, not by 
any means the larger part, of this represents the production of 
wealth in the interval. By far the greater share represents the 
transplanting to this spot of wealth previously existing. Yet, 
in addition, there may, as Ave said, conceiA^ably have been 
a large creation of A^alues due to the improvement of 
commercial sites and commei'cial aA^enues heretofore neg- 
lected. 

Such instances of the destruction of Avealth leading to a 
larger production are comparatively rare. In the A'ast 
majority of cases, that destruction, however rejoiced over by 
shallow persons who are influenced only by " what they see," 



330 POLITICAL ECONOMY. 

or by selfisTi persons who secure an immediate individual 
advantage from the loss of others, which is also a public loss, 
is a misfortune which is properly only the subject of regret. 

360. Governnieiit Expenditure.— On the part of many, 
perhaps most, persons who favor large government expendi- 
tures, the actuating motive is found in the opinion we have 
already dealt with, that wasteful and even destructive consump- 
tion "makes trade good," "encourages industry," "raises 
wages," &c. To this shallow notion Ave need pay no further 
attention. Something which is at least less obviously false is 
intended in the proposition laid down by more than one econo- 
mist of reputation, that government expenditures, within 
moderate limits, are industrially beneficial. 

This view may be stated in the language of Mr, McCulloch, 
one of the jnost careful of the English economists of the last 
generation: — 

" A moderate increase of taxation has the same effect on the 
habits and industry of a nation that an increase of his family 
or of his necessary and unavoidable expenses has upon a pri- 
vate individual. Man is not influenced solely by hope ; be is 
also powerfully operated upon by fear. Taxation brings this 
latter principle into the field. To the desire of rising in the 
world, inherent in the breast of every individual, an increase 
of taxation superadds the fear of being cast down to a lower 
station, of being deprived of conveniences and gratifications 
which habit has rendered almost indispensable; and the com- 
bined influence of the two principles produces effects that 
could not be produced by the unassisted agency of either. 
They stimulate individuals to endeavor, by increased industry 
and economy, to repair the breacli taxation has made in their 
fortunes; and it not infrequently hapj^ens tliat tli.'i.' efforts do 
more than this, and that, consequently, the national Avealth is 
increased through increase of taxation. 

"But Ave must be on our guard against an abuse of this 
doctrine. To render an increase of taxation jiroductive of 
greater exertions, economy and invention, it should l>e sloAvly 
and gradually brought about, and it should never be carried 
to such a height as to incapacitate individuals from making 



GOVERNMENT EXPENDITURE. 331 

the sacrifices it imposes by such an increase of industry and 
economy as it may be in their power to make, without requir- 
ing any very violent change in their habits. The increase of 
taxation must not be such as to make it impracticable to over- 
come its influence, or to induce the belief that it is impracti- 
cable. Difficulties that are seen to be surmountable sharpen 
the inventive power and are readily grappled with; but an 
apparently insurmountable difficulty, or such an excessive 
weight of taxation as it was deemed impossible to meet, 
would not stimulate, but destroy exertion. Instead of pro- 
ducing new efforts of ingenuity and economy, it would pro- 
duce only despair. Whenever taxation becomes so heavy 
that the produce it takes from individuals can no longer be 
replaced by fresh efforts, they uniformly cease to be made; 
the population becomes dispirited,* industry is paralyzed and 
the country rapidly declines." 

And to the same effect Jeremy Bentham writes: " By raising 
money as other money is raised, by taxes (the amount of 
which is taken by individuals out of their expenditure on the 
score of maintenance), government has it in its power to 
accelerate to an unexampled degree the augmentation of the 
mass of real Avealth." 

Such is the claim in behalf of government expenditure. 
What is to be said of it ? Let us proceed by way of an ex- 
amj^le. Let us take a large population spread over a vast 
extent of country, like India, which jjossesses almost illimit- 
able facilities for the improvement of the soil through irriga- 
tion, and whose broad spaces demand numerous and extensive 
lines of artificial communication, by canal or railway. Let it 
be supposed that the people occupying this country are what 
the peojile of India now are, in numbers, in character, in habits 
of living and of working. Alike under the influence of 



"'I canuot, forbear to qiiote the words of Bacon: " The blessing of 
Judah and Issachar will uever meet : that the same people should be 
both the lion's whelp and the ass between burdens ; neither will it be 
that a people overlaid with taxes should ever become valiant and mar- 
tial. " 



332 POLITICAL ECONOMY. 

sexual passion and of religious superstition,* they continually 
tend to increase uj) to the limits of subsistence, even up to the 
very verge of famine ; not only accumulating no capital, but 
so far as their own initiative goes, laying by no store for 
future Avants, except a little, here and there, in the way of 
bracelets and trinkets of silver, which may be sold at the 
beginning of a period of distress ; having neither the genius 
for organization nor the capacity of self-denial which would 
be required to initiate the simplest local improvements, not to 
speak of vast sj^stems of transportation or irrigation. 

Now, we may imagine such a population, so situated, to be 
ruled by a benevolent, disinterested dcsjDOt of the highest 
order of intelligence, a Napoleon devoted to the arts of peace. 
We may imagine this ruler, by a system of taxation that shall 
be as just between individuals and as judicious in its seasons 
and methods as human wisdom can make it, first, drawing 
from the crops of good years a store against the occurrence 
of bad harvests ; then, by a gradually increasing stringency 
of exaction, adding to the cost of living in such a way as to 
discourage the rapid growth of population, while applying 
the j)roceeds of all taxes, not to war, not to the splendor of the 
sovereign, not to debauchery, but to great public improve- 
ments which enable the food supply of the empire to be 
readily equalized in the event of local scarcity, Avhich guard 
the crops against the effects of periodical di'ought and thus 
save the harvest of one year in every four or five from 
partial destruction ; which afford rapid and cheap passage 
to the products of inland districts and allow the labor of men 
and bullocks, once devoted to a tedious and costly transporta- 
tion of materials, to be applied to the multiplication of the 
materials themselves, be they materials for food, or clothing, 
or shelter. 

And as the productive power of the country increased under 
such an administration, Ave can imagine the high-minded ruler, 

* Tlie early maniages of India are altribnted to the religious beliefs of 
the people, astliey lield lliat the Avelfare of the soul after death depends 
greallyon the performance of the burial riles by male offspring of the 
deceased. 



GO VERNMENT EXPENDITURE. 333 

intent on his benevolent purpose, still drawing away from the 
people, by taxation, all the surplus above the necessary cost of 
subsistence for the present population, which might otherwise 
be applied to the increase of population, and, with the means 
thus acquired, providing capital in its various forms for the 
use of the frugal and the temjDerate, perfecting communica- 
tions, protecting the health and lives of his subjects by sani- 
tary arrangements, and, at last, undertaking the elementary 
education of the whole body of the peoj)le, by instruction 
both in letters and in the mechanic arts. 

All this, it is clear, an absolute ruler of the character indi- 
cated might do for his people ; * and not a little of this many a 
benevolent and able ruler has done for his people. The " forced 
frugality," to use Bentham's phrase, Avhich his taxes have im- 
posed, has at once repressed population and stimulated industry 
among the existing body of laborers ; while the wise expend- 
iture, upon public works and in public education, of the vast 
sums thus brought into the treasury, has sown the seed from 
which has sprung many a golden harvest. 

But while we see, thus, what an ideal monarch might do for 
a people indolent, unambitious, sensual ; what many an actual 
monarch has done to raise his subjects, by applying a portion 
of the wealth they created to ends more useful, elevating and 
satisfying than their individual tastes and appetites would 

* This is, in fact, involved in the theory of the British administration 
of India: the reasons are well stated in the following paragraph from 
the Times of 1879. 

' ' In England the remission of taxation is urged with great force, 
because, it is said that taxes remitted will fructify in the pockets of the 
people. Noi-esult of this kind can be expected in India. If the condi- 
tions of living are made easier there, as they would be by a remission of 
taxes, the consequences would not be an improvement in the well-being 
of the people, but an increase of their numbers. Our duty, therefore, 
as guardians and governors of the people, charged with the responsibility 
of keeping alive in times of famine a vast population with no reserved 
resources of its own, is to save for those who do not save for themselves, 
to keep a margin of income over expenditure so that we may have in 
hand a fund upon which to draw in the recurrent periods of distress. 
This is a leading principle in Indian finance. Whoever forgets this neg- 
lects the primary duty of an Indian Administrator." 



334 POLITICAL ECOAWMY. 

have selected, we are forced also to remember how large a 
part of the wealth raised by taxation, even under governments 
no worse than the average, has, in all ages, been spent in war, 
pomp and folly ; how strong is the temptation to extravagance 
and even to corruption in all governmental expenditure ; how 
much of what the people pay the treasury does not receive ; 
how much of what the treasury disburses, even in seeking 
truly productive ends, does not reach its intended object. 
These considerations are strong enough to justify, in a large 
degree if not wholly, that unwillingness to entrust to gov- 
ernment the consumption of any share of the wealth of the 
community, much beyond what is necessary to secure domestic 
tranquillity and the administration of justice between man 
and man, which is so peculiarly American. 

Yet it is possible that this feeling may be carried too 
far. When one contrasts the highways, the bridges, the 
streets, the harbors, the break-waters, the light-houses, and 
other aids to transportation and commerce, which government 
provides, with the best that could reasonably be looked for 
from individual or associated effort, without the taxing power; 
when one contrasts the system of public education in the 
most backward of our Northern States with the best that 
voluntary contribiitions or private munificence ever supplied ; 
when one contrasts the sanitary arrangements for supplying 
pure air and jjure water to our crowded cities, defective as 
these arrangements are at the present stage of sanitary science, 
with the condition of things which exists where these matters 
are left to unofficial action ; and when, with these contrasts 
before him, he considers the strictly economical results of 
State expenditures in these directions, notwithstanding all 
their drawbacks, he will, if intelligent and candid, find occa- 
sion to qualify in no small degree his assent to the proposition 
that, under a Avell-ordered constitxition, government is only a 
policeman, to keep peoj^le from breaking each other's heads or 
picking each other's pockets. 



PART VL 



SOME APPLICATIONS OF ECONOMICAL 
PRINCIPLES. 



It has seemed best to reserve to this portion of our 
work the discussion of some tojsics which involve the appli- 
cation of economical principles to questions of law or govern- 
mental policy, into w^hich considerations of political equity or 
political expediency will intrude themselves so that they can 
hardly be shut out; and also to place here some matters of 
economic detail which might have unduly interrupted the 
course of our argument had they been dealt with at the points 
with which they are logically connected. 

Throughout this part, therefore, I may be found to adduce 
considerations not sti'ictly economical, with a freedom I have 
not allowed myself heretofore. 

The topics to be treated under this title are: 

1. Usury Laws. 

2. The Banking Functions. 

3. Industrial Co-operation. 

4. The Multiple or Tabular Standard. 

5. Trades-Unions and Strikes. 

6. The Doctrine of a "Wages Fund. 

7. The Unearned Increment of Land. 

8. Political Money. 

9. Bimetallism. 

10. Pauperism. 

11. The Revenue of the State. 

12. Taxation. 

13. " Protection " vs. Freedom of Production. 

335 



336 POLITICAL ECONOMY. 



USURY LAWS. 

361. It has already been said (par. 33) that it is 
not the province of the economist to justify the existing 
order of things, or to establish the morality or the political 
eqi;ity of laws or institutions aifecting property; yet we shall 
get so good a side-light upon the economical principles gov- 
erning the loan of capital in briefly considei'ing the objections 
that have been raised against interest, or the taking of usury, 
as it is invidiously called, that it maj^ be worth our while to 
step out of the direct path for a moment, at this point. 

For many centuries, and even within a comparatively recent 
period, the Christian Church proscribed the taking of usury 
as a moral offence, and the laws of nearly all civilized countries 
made it a crime, while the voice of publicists and of ethical 
writers, alike, was raised against it as a wicked and jjernicious 
practice. Whence came this general consent in denouncing 
that which is to-day accej)ted as right in morals and as prac- 
tically beneficial, by all except a few fanatics ? 

The origin of the prejudice against usury is commonly 
attributed to a mistaken apprehension of a provision of the 
Mosaical Code* forbidding the receipt of interest from any 
member of the chosen race, and to a passage in the works of 
Aristotle, those works which once had so profound and perva- 
sive an influence in forming the political philosophy of 
Europe, to the effect that as money does not produce money] 

* Reflected in many passages in the Hebrew Scriptures. 

" He that putteth not out his money to usury, uor takelh a reward 
against the innocent, he that doeth these things sliall never be moved." 
— Psalms, 15, 5. 

"He that by usury and unjust gain increaseth liis substance, he shall 
gather it for him tliat Avill pity tlie poor."— Provkhbs, 28, 8. 

"Hath given fortli upon usury and liatli taken increase — shall he then 
live ? Pie shall not live; he hath done all these abominations." — Ezekiel, 
18, 13. 

The apparent recognition of usurj'- in the New Testament was ex- 
plained by the medieval theologians as concessum propter duritiam 
cordis. 

f" A breed of barren metal." — Merchant of Venice, I., 3. 



USURY. 337 

nothing more than the return of the principal sum lent can 
equitably be claimed by the lender. 

Of the theological argument it is not necessary to say much 
here. The inhibition of usury, as between one Hebrew and 
another, was doubtless a feature in the general policy adopted 
for keeping the peculiar people apart from their profane 
neighbors and intensifying their community of feeling. But the 
dictum of Aristotle, claiming no divine authority but pro- 
fessing to found itself on reason, remained unchallenged for 
ages amid all the political speculations of Europe. Mr, 
McCulloch attributes to John Calvin the high honor of having 
first detected the fallacy of this argument against usury, discern- 
ing that, while money does not produce money, that which may 
be purchased with money may produce after its kind, and that 
lierein is a perfect justification for the payment of interest. 

Money does, indeed, not produce money; but if a man bor- 
rows money lie may with it buy grain which, when sown, 
will bring forth " some thirty, some sixty and some an hun- 
dred fold;" he may purchase cattle, of which a small herd 
will, in a few years, become a mighty one; or if he employs it 
in trade or in manufactures, his production may be so largely 
increased thereby that he may pay a liberal reward to the 
lender, and yet be far better off than if he had not borrowed. 

362,— England led the movement towards a more enlight- 
ened policy. By an act of 1546 * lenders were allowed to 
receive interest, though at a rate not to exceed ten per cent. 
During a brief reaction under Edward VI, this law was. 
repealed, but a statute of Elizabeth restored the right to 
take interest. Subsequent statutes reduced the rate of legal 

* 37, Henry VIII. Though thus legalized, public sentiment and par- 
ticularly the opinions of the clergy remained in a high degree hostile to 
usury; and the profession of the money-lender was not reputable. " I 
do wish," said Dr. 'Wilson, in his Discourse upon Usury, published 
more than twenty years after the act of Henry VIII., " some penal law 
of death to be made against usurers, as well as against thieves and 
murderers, for that they deserve death much more than such men 
do; for these usurers destroy and devour up, not only whole families, but 
also whole countries, and bring all folks to beggary that have to do with 
them." 

22 



3U8 POLITICAL ECONOMY. 

interest successively to 8, G and 5 per cent. (Queen Anne), 
at which hist point it remained till the present reign, when all 
restrictions on loans were abolished. 

Among the States of the American Union, Massachusetts 
has made contracts of loans as free as those of purchase and sale. 

Interest is now allowed to be paid on loans in all civilized 
countries, the prohibition of usury having fallen utterly out of 
the sympathies of this age. That the lender has a right to par- 
ticipate in the gain which the borrower anticipates from the 
use of the money or other commodities lent, is not better 
established in law than in the jjojjular philosophy of life. 
Money-lending, or the taking of interest when payment for 
goods or lands is forborne, has passed beyond all stigma; and 
the profession of the banker, who organizes and conducts the 
borrowing and the lending of whole communities, is among 
the most honorable known to modern society. 

Yet while it is now fully recognized as both right and expe- 
dient that the lending of money at interest should be not only 
allowed but encouraged, as for the promotion of trade and 
manufactures, there still survives an opinion, very widely 
spread, that the taking of interest should be under the i-egula- 
tion of the State, to prevent the abuses which are ajjprehendcd 
from the power of the money-lender over the needy and neces- 
sitous borrower: in other words, that, to use Bacon's phrase, 
" the tooth of usury be grinded, that it bite not too much," 

This opinion finds expression in the statutes of nearly all 
nations and of almost every State of the American Union, and 
even the general banking law of the United States provides that 
the associations (National banks) to be organized thereunder 
may receive interest at the rate allowed by the laAvs of the 
State, Territory or District where they are located, and no more, 
and that, where no local rate is fixed by law, the rate of interest 
shall not exceed seven per cent., to be, however, taken in 
advance (discounted). 

363. All civilized nations having legalized the taking of 
interest on loans, the term, usury laws, as applied to existing 
legislation, has reference, not to the prohibition of interest 
but to its regulation, generally through the means of a pre- 



USUR Y. 339 

scribed maximum rate whicli it is made unlawful to exceed. 
As has been stated, such laws still stand on the statute books 
of most civilized states. What shall be said of them ? As a sub- 
stitute for the laws that forbade the taking of interest in any form 
or degree, these usury laws must be regarded as in the nature 
of enlightened 'legislation, and I am not sure that, even when 
considered without comparison Avith pre-existing legislation, 
these laws were, in an earlier time, wholly without justification in 
economics or in political equity. They were enacted in the 
interest of the would-be borrower, who was regarded as 
unable to sustain, without grave injury, which might also 
work injury to the community, the competition to which he 
was subjected in his efforts to secure the loan of capital. 
And in the age in which these laws were enacted, this assump- 
tion was not without reason. 

Borrowers were, then, generally persons embarrassed or 
distressed, whether by their own fault or by misfortune. 
Trade and manufactures were not then, as so largely now, 
carried on by means of borrowed capital. The man who 
asked a loan was presumably in circumstances which put him 
very much at the mercy of the money lender, just as a man 
in times of famine is very much at the mercy of the dealer in 
food, who may make unreasonable, extortionate and most 
cruel terms, while the poor wretch is ready to sell his birth- 
)-ight or sign away his inheritance, as the fragrant steam 
from the mess of j^ottage rises to his nostrils. 

And the money lender in those days was not, in general, a 
nice sort of person. The recent outbreaks in Roumelia, Rou- 
mania and Russia testify to the natural feelings of a simple- 
minded, ignorant, passive, and more or less stupid people, 
who see houses and lands and cattle and goods and even 
standing crops j^ass with fatal certainty out of the hands of 
tlie many into the hands of a class in whom the faculty of 
acquisition is developed to such a degree as to make them, in 
comparison with a peasantry like that of the Slavonic States, 
as wolves among sheep. 

Wc allow all men to walk our streets indifferently, because 
men are so constituted physically as to be substantially equal, 



340 POLITICAL ECONOMY. 

so far as contact is concerned. We brush each other and 
sometimes run full against each other, and yet give and take 
no harm. But sujjpose one-half the people of our cities were 
made to be as fragile and brittle as glass, while the other 
half, divided on the line of sex, or otherwise, w'ere as heavy 
and as hard as iron, w^ould not the law require the latter to go 
by separate streets, and ^^rotect the weaker part of the com- 
munity from a contact that would be fatal ? 

I am not at all sure that sound economical reasons would 
not justify the legislature in interfering to save by any prac- 
ticable means one class in the community from the effects 
of such one-sided competition as existed between borrower 
and lender in the age referred to; nor am I sure that the kind 
of laws referred to were wholly without the beneficent effects 
they were intended to have, although they were, of course, to 
a great extent evaded. 

364. The methods which obtained in the earlier times for 
escaping the penalties of the laws against usury are thus 
stated in the work of Gabriel Powell, entitled "Theological 
and Scholastical Positions Concerning Usury," published at 
Oxford in 1602 : 

^^ First, then, this covert and shrouded usury is committed 
in Buying and Selling.'* 

" 1. 1 buy barley, aforehand, for four shillings a koome, which 
at the time of delivery (I know) wall be worth six shillings, or 
a noble. 

" 2. I sell my wares : I give a day of payment and for that 



* " To take up commodities on trust." — See Lodge & Green's " Look- 
ing Glass for London and England." 

" Money that I took up of you, a late m a commodity," i. e., took the 
commodity to dispose of, out of which to realize the money which he 
was supposed to borrow. 

So Shakespeare, in Measure for Measure (Act IV, scene 3) : 

" Here's young master Rnsh; he's in (/. e., in jail) for a commod- 
ity of brown paper and old giuger; nine score and seventeen pounds, 
of which he made five marks, read}' money. Marry, then, ginger wa3 
not much in request, for tlie old women were all dead." 

See also " The Michaelmas Term." 



USURY. 341 

I am to forbear my money so long, I sell above my ordinary 
price, or above a reasonable price. 

" 3. A man comes to me to borrow money: I answer I will 
lend him no money for usury; but if he will buy a horse of 
me for £10, which is scarce worth twenty shillings, I will lend 
him so much money for such a time. 

" Secondly. It is committed under pretense of Letting. 

" One comes to me to borrow a hundred pounds for seven 
years. I answer, he shall have it, if he will hire a house of 
me for ten pounds yearly (which is scarce worth ten shillings), 
and take a lease of the same during the said term of seven 
years. 

" Thirdly. It is committed in Lending. 

"1. I come to a man to borrow money. He will lend me so 
much as I do ask, but in light gold, in cracked angels, or such 
like. Yet he will have payment in good current money. 

" 2. If, in consideration ot money lent, I take a piece of 
ground, a house, or cattle, or any fructifying thing, until the 
money be paid again. 

" 3. If, for such consideration, I take for pledge, apparel, 
plate, &c., and use the same until payment be made. 

" 4. I deliver £20 upon condition to have two and twenty 
pounds at the year's end if I be then living; but if I die to 
have but eighteen j^ounds restored tome again. 

*' 5. I deliver £2 upon condition to have two and twenty 
pounds at the year's end, if either mj^self or one other whom 
I shall name be then living; but if both be dead at the same 
time, then no part of j^ayment at all to be made, neither of 
gain nor of principal. 

^'Fourthly. It is committed in laying to jjawn. 

" I lend £20 for a year, and for assurance of my own, 1 
take a pawn worth £30 or £40, with a bill of sale, that in de- 
fault of payment, at the day aj^pointed, the j^awn - shall be my 
own." 

[The usurer's interest here is that the pawn shall be forfeited 
and his chance of this — the borrower being a distressed person 
— is worth more than honest interest on the value of the thing 
lent. Thus Lord Bacon says : " As for mortgaging or pawn- 



343 POLITICAL ECONOMY. 

ing, it will little mend the matter ; for either men will not 
take pawns without use; or, if they do, they will look pre- 
cisely for the forfeiture. 

"I remember a cruel moneyed man in the country that 
would say: ' The devil take this usury; it keeps us from for- 
feiture of mortgages and bonds."] 

365. Such were the methods resorted to in England, during 
the sixteenth and earlier centuries, for evading the laws against 
usury. 

Doubtless similar tricks have been resorted to, many a time, 
in more recent days, to pass the consideration of loans in- 
tended to carry a higher than the legal rate. But modern 
ingenuity, stimulated by the lively and imperative demands 
of large commercial transactions, has discovered easier and 
simj)ler and quicker modes of " nullifying " the laws against 
usury. 

Among these modes may be mentioned the following : 

1. Fictitious deposits. — The bank scrujsulously respects 
the legal prescription of a maximum rate of interest; but its 
customers make up the diif erence by keeping " a large line of 
deposits." " The compensation to the banker," said Samuel 
Jones Lloyd, afterwards Lord Overstone, in his evidence 
before the Commons Committee of 1841, " for Lis loss in 
advancing money uj)on discount at a rate below its real value, 
would be found in the value of the accounts kept Avithliim by 
the parties to whom such advances were made." 

2. Commissions. — Sir J. W. Lubbock, in his testimony 
before the same committee, said : " In times when money is 
scarce, I believe it has been usual for bill-brokers to charge 
a commission beyond the rate of discount. If you add that 
to tlie discount, and consider it as discount, the rate may easily 
come up to eight or ten per cent." 

3. " Dry Exchange," as it is called by Plowden, in his work 
on Usury, has been a shift resorted to for evading the law, by 
means of a bill of exchange, which the borrower drew on an 
imaginary person, in a foreign country or distant city. After 
tlie expiration of the time the bill was to run, came a protest 
from that country or city for the non-payment of the bill, 



USUR V LA WS. 343 

with the re-exchange of the money thence to the place where 
the bill was drawn, the paper having, in fact, never been out 
of the country. " The borrower being thus charged with 
exchange, re-exchange, protest and incidental expense, pays, 
in all, some 20 or 30 per cent."* 

(4.) Another way in which the lender may indirectly obtain 
the advantage of which the law would dej)rive him, is by com- 
pelling the would-be borrower to take the capital for a longer 
term than actually required. Instance in j^oint is given by one 
of the witnesses before the Parliamentary Committee already 
referred to. 

" I remember a case within about three or four years ago. 
A very eminent mercantile house required to borrow £100,000, 
and they had ample security to offer; but as the law would 
not allow them to give more than five per cent, u^ion landed 
security, and as no individual would lend his money for six 
months or twelve months, which was the period for which 
alone they required it, they were prepared to stipulate, and I 
was authorized to stipulate to keep the money for the period 
of seven years. Now, that certainly is an illustration of 
what I mentioned, viz., that a loan of money at a high rate for 
a short period, is much more beneficial to the trader, in many 
cases, than to be compelled to take the money for a j)eriod 
that he does not want it." 

366.— But of even more importance, in this connection, 
though it is rather to be regarded as one of the injurious 
effects of usury laws than as a means purposely resorted to for 
evading them, is the fact of the forced sales of goods, f to 
which merchants and manufacturers are often driven by their 
inability, under the law, to pay a rate of interest sufficient, in 
hard times, to secure a needed loan. 

In illustration of this we may quote Mr. Tooke, who, in 

*See Murray : History of Usury, p. 442. 

f It is to this Lord Bacon alludes when he says " Were it not for this 
easy borrowing upon interest, men's necessities would draw upon them a 
most sudden undoing, in that they would be forced to sell their means 
(be it lands or goods) far underfoot; and so whereas usury doth but gnaw 
upon the77i, bad markets would swallow tJiem quite up." 



344 POLITICAL ECONOIMY. 

speaking of the distress of 1825-6, says: " The operation of 
the usury law may be distinctly traced in a great aggravation 
of the distress among merchants and bankers during that 
critical period. Had it not been for that preposterous law, 
many individuals Avould in all probability, have been enabled 
to obtain immediate relief, by getting bills which were not 
within the bank time discounted at seven or eight per cent. ; 
but those who would have lent on that kind of security 
if not limited to five per cent., naturally directed their dispos- 
able capital to such modes of investment as admitted of their 
realizing a larger interest without coming within the opera- 
tion of the law. Thus, numbers who would gladl}^ have 
given an advanced rate of eight or ten per cent, were driven 
by an enactment which was absurdly intended as a protection 
to them, to sell stock or goods at a loss of twenty or thirty 
per cent, for cash, compared with the price for time. For it 
is a matter of notoriety that extensive sales were actually 
made of stock, at that difference, and it is within my own 
knowledge that sales of goods for immediate money were 
made at a still greater sacrifice." 

367. — On the whole, I do not think that the quest' on of the 
effect of usury laws upon the rate of interest, in a primitive 
and mainly agricultural community, is quite so simple as most 
economical writers have treated it as being.* On the one 
hand, I have no doubt that the fixing of a legal rate of inter- 
est has a certain effect upon the disposition of owners of cap- 
ital in lending that capital. We have seen (par. 130) that 
the moral and intellectual elements of su^^ply and demand are 
very i:)otential in exchange. I have no doubt Avhatever, 
that the current rate of interest, in a country where a rate 
is fixed by law, sometimes affords a very striking example 
of the opei'ation of this force. Again, I have no doubt that 
the influence of penalties threatened for exceeding a certain 

* " It is in vain, therefore," says John Locke, " )o go about cflfeclually 
to reduce the price of interest by a law; and you may as rationally hope 
to set a fixed rate upon the hire of houses, or ships, as of money." And 
elsewhere this eminent philosopher calls a law to regulate the rate of 
interest "a law to hedgc-iu the cuckoo." 



USUI^Y LAIVS. 345 

rate of interest, in a community cliiefly non-commercial and 
of simple industrial organization and where the element of 
personal acquaintance largely enters into all relations of man 
with man, is distinctly felt in inducing some persons, though 
by no means all persons, to accept the legal rate, if that be fixed 
tolerably near the ordinary market rate so that the tempta- 
tion to evade the law is not overwhelmingly great. On the 
other hand, it is equally clear that such j^rovisions of law may 
be evaded by the various means recited, and probably will be 
evaded whenever the inducement offered is very great, and 
that, so far as borrowers are driven to shifts to disguise excess 
of usury, they are likely to find themselves worse off, and not 
better off, than they would be in an open market. 

Just where the balance would be, in such a community as has 
been described, so far as the interests of distressed borrowers, 
or even of the ordinary agricultural borrower, are concerned, 
I confess I do not feel confident; and I doubt if any man 
knows enough to say rightly even to which side the balance 
might incline in a community composed of men of different 
race, or of different traditions and social habits, from those 
whom he has been accustomed personally to observe. 

368.— But in any modern commercial community of large 
and varied and complicated industrial concerns, the case re- 
garding laws fixing the rate of interest is a very simple one. 

In an advanced state of industrial society, where borrowing 
is no longer the resort of the embarrassed and distressed, 
alone, or mainly, but, on the contrary, the most flourishing 
trade and manufactures ars carried ron chiefly by means of 
borrowed capital; where, in the usual course of prosj)erous 
business, notes are made and are j)aid by the thousands, or by 
the tens of thousands, every day, usury laws become purely 
raiscliievous. 

First, because the vastly greater interests of trade and 
industry would properly outweigh, were society called to 
choose between them, the interests of distressed and embar- 
rassed individuals, in this matter of the loan of capital; and. 

Secondly, because such persons will, in fact, benefit by the 
greater plentifulness of capital, the greater ease of borrowing, 



346 POLITICAL ECONOMY. 

and the consequently lower rate of interest, wbicli, in general, 
result from freedom regarding contracts for loan in a com- 
mercial and manufacturing community. The "business 
classes," active, alert, aggressive in competition, will make 
rates of interest by which the less fortunate members of society 
will profit. 



n. 

THE BANKING FUNCTIONS. 

369. — "The trade or profession of banking," says Lord 
Liverpool, " has been exercised in all countries and all ages. 
It existed in the republic of Greece and in ancient Rome. 
There were, in all these States, men who received money as a 
deposit, repaid it upon the drafts of those who had intrusted 
them with it, and derived their profits from having this money 
in their custody." 

1st. Financiering. — In modern times, the first banks apj^ear 
in Italy, Mr. Bagehot states that the earliest of these " were 
finance companies. The Bank of St. George, at Genoa, and 
other banks founded in imitation of it, Were at first only com- 
panies to make loans to, and to float loans for, the govern- 
ments of the cities in which they were founded." 

" Financiering," then, may be regarded as the first banking 
function developed, in modern times. In the reign of William 
and Mary certain capitalists made a loan of £1,200,000 to the 
English Government, receiving, in consideration therefor, a 
charter constituting them the Governor and Company of the 
Bank of England, Robert Morris's Bank of North America 
had a very similar origin. Under the present National Bank- 
ing System of the United States, the bank begins by lending 
all, or nearly all, its capital to the government. 

370.— 2d. Book credits of the Bank of Amsterdam. — Tlie 
next banking function historically developed was that of giving 
the people good money in ])]ace of a medley of worn and cli])- 
ped coins of a great diversity of coinages, belonging to many 



THE BANKING FUNCTIONS. 347 

nations. It was to serve this office that the banks of Northern 
Europe were created. 

" Before 1809," says Adam Smith, " the great quantity of 
clipj)ed and worn foreign coin which the extensive trade of 
Amsterdam brought from all parts of Europe, reduced the 
value of its currency about 9 per cent, below that of good 
money, fresh from the mint. Such money no sooner appeared 
than it was melted down or carried away, as it always is in 
such circumstances.* The merchants, with plenty of currency, 
could not always find a sufficient quantity of good money to 
pay their bills of exchange; and the value of those bills, in 
spite of several regulations which were made to prevent it, 
became in a great measure uncertain. 

"In order to remedy these inconveniences, a bank was 
established, in 1609, u,nder the guarantee of the city. This 
bank received both foreign coin and the light and worn coin of 
the country, at its real intrinsic value in the good standard 
money of the country, deducting only so much as was neces- 
sary for defraying the expense of coinage and the otherneces- 
sary expenses of management. For the value which remained 
after this small deduction was made, it gave a credit on its 
books. This credit was called bank-money, which, as it rep- 
resented money exactly according to the standard of the mint, 
was always of the same real value, and intrinsically worth 
juore than current money. It was at the same time enacted 
" that all bills drawn upon or negotiated at Amsterdam, of 
the value of 60 guilders or upwards, should be paid in bank 
money, which at once took away all uncertainty in the value 
of those bills. " 

It will be observed that Adam Smith calls these credits 
inscribed upon the books of the Bank of Amsterdam, " bank- 
money ;" but this money, if it is to be called so, will be seen to 
differ widely from the bank money of to-day, already described: 
1st. It did not circulate from hand to hand, as the ordinary 
medium of effecting exchange ; 3d. It was never in excess of 
the amount of metallic money actually in the vaults on 
deposit. 

* See Statemcut of Gresham's Law, par, 161-?, 



348 POLITICAL ECOXOMY. 

371.— 3d. Cancellation of Indebtedness.— The next bank- 
ing function, ■vvhicli we are called upon to notice, is the Can- 
cellation of Indebtedness. 

An enormous volume of indebtedness at all times exists in 
any highly progressive country, which has to be paid and 
renewed from day to day. The labor and loss of time involved 
in collecting debts and paying moneys, with the probable 
delay and disappointment involved therein, would be almost 
intolerable unless some special agency Avere established for 
doing this work upon a large scale and with all the advanta- 
ges which we have found to result from the application of the 
division of labor. This function the bank performs. 

If, in any great city, many banks are required to carry on 
this function, these banks, in turn, establish a common agency 
for settling their mutual obligations, called a Clearing House."^ 

The transactions of such an institution in New York or Lon- 
don may amount to thirty or forty thousand millions of dollars 
a year. This vast body of indebtedness is adjusted through the 
labor of a tenth, perhaps only a hundredth part as many clerks 
and messengers, and the use of a tenth, perhaj^s only a hun- 
dredth part as much actual money as would have been required, 
had each person who had money owing to him been obliged to 
attend to the collection himself, or through his own clerks or 
messengers. 

372 —4th. Exchange. — The next banking function is to remit 
money and conduct exchange. 

What is termed " Exchange," is merely tlie principle of the 
cancellation of indebtedness between individuals of the same 
city, carried out to trading communities and nations. Formerly 
when debts were paid by the merchants of one country to 
those of another, it was necessary actually to change the 
money of the debtor country into that of the creditor country. 
Hence the term, Exchange. The term is now, however, 
applied equally to cases where no money-changing takes 
place, as where two countries, like France and Belgium, 

*The subject of the Clearing House, and, indeed, all the agencies and 
instrumentalities of trade will be found treated most, lucidly and justly iu 
Prof, Jcvons' work " Money and the Hecluiuisni of Exchange." 



THE BANKING FUNCTIONS. 349 

have identical money pieces — the five frano and twenty 
franc j)ieces, containing exactly the same amount of fine 
gold or silver, though with different coinage stamj^s ; and 
also to cases where the transaction occurs between two cities 
which are under the same government, and have money not 
only of the same denominations but of the same designs and 
inscriptions. 

In essence, where a man buys exchange — he buys the right 
to have paid to him, or his agent, or creditor, a certain 
amount of fine gold or silver, to be delivered in some other 
place mentioned in the contract. If I buy in New York 
" exchange on London," some one who has gold in London, or 
Avho has a right to demand gold there, sells me his claim to 
receive a definite amount of that metal, in London, at a definite 
time, or at my convenience if Ave so agree. I may then, either 
go to London and get the metal, as, for instance, if I am start- 
ing out on a European tour, or I may send an order, by post 
or telegraph, for some one else to get it there, as, for instance, 
if I have bought cotton goods or j)ictures in London, and have 
agreed to pay for them in this way. 

Now, we may sujDpose that, in order to induce some person 
to sell me " exchange on London," I have to pay him, not in 
goods but in a certain amount of gold in New York, where 
we both live. How much gold shall I pay him in New York 
to induce him to give me the right to receive a certain amount, 
say 1,000 ounces, of gold in London ? Shall I have to pay 
him 1,000 ounces, or more or less? That depends on whether 
exchange is at par, or above par, or below par. 

Exchange between two places is at par, when, by paying a 
certain amount of money metal, or its equivalent, in one place, 
you can purchase the right to receive an equal amount of the 
same metal in the other. I say, the same metal, for there can 
be no par of exchange between countries having gold money 
and countries having silver money, unless, indeed, the bi-metal- 
lists shall make good the claim that their system will establish 
and maintain a certain definite ratio JbejtAveen the values of 
the two metals. 

Exchange is above par or below par, when the right to 



350 POLITICAL ECONOMY. 

receive elsewhere a given amount of gold or silver, is to be 
purchased by paying, in the one case, a larger, and, in the other 
case, a smaller amount of the same money metal, in the place 
where the transaction is effected. 

Exchange will be at par when the sums of the payments to 
be made to and from any two places, within a given time, 
exactly balance each other. If the sum of the payments to 
be made within a limited period by the merchants of one 
place, say New York, to the merchants of another place, say 
London, is greater than the sum of the payments to be made 
in New York by the merchants of London, then, exchange 
on London will be above par in New York, that is, a New 
York merchant having to pay a debt, within that period, in 
London, Avill have to pay down more tlian 1,000 ounces of 
gold in New York to buy the right to have paid to him, or to 
his creditor, 1,000 ounces of gold in London. 

The upward limit of the premium on bills of exchange is the 
cost of remitting specie. The New Yox'k merchant, in the case 
supposed, will not j)ay more, in addition to 1,000 ounces, than 
the cost of sending 1,000 ounces from New York to London, 
freight, insurance, and commissions being taken into account. 
If the holders of bills demand a premium above this, the New 
York merchant will send the metal, and in that Avay pay his 
debt. Within the limit thus assigned, the premium on bills 
rises or falls with tlio fluctuations of the market, according to 
the law of supply and demand. 

Tins function, again, the bank to a great extent performs, 
and in so doing renders the trading community an immense 
service. If every merchant who had to pay money in another 
city or country was obliged to find out, for himself, some 
person who had the right to receive money at that place, at 
that time, and perhaps in the same sum, an inconceivable 
amount of inconvenience and delay, of vexation and disap- 
pointment, often resulting in commercial discredit, would be 
experienced. 

If we may accept Mr. Henry Thornton's account* of the rise 

* lu his famous work ou Paper Credit, published in 1802. 



THE BANKING FUNCTIONS. 351 

of the country banks of England, it was through the gradual 
growth of exchange-operations between country shopkeepers 
and those of the cities, that these institutions came almost 
unnoticed into existence. 

373. — 5tli. Safe Deposit. — The fifth banking function is to 
serve as a place of safe deposit. Mr. Francis, iii his History of 
the Bank of England, attributes the rise of the city banks j^ri- 
marily to the need of this service on the part of shopkeepers 
and private persons of means. In the unguarded and 
unlighted London which Macaulay so graphically describes in 
his memorable Third Chapter, robberies and burglaries were 
of frequent occurrence. No man's home was safe, if he were 
known to have any considerable amount of treasure, unless 
barricaded and defended by armed servants. The goldsmiths 
having in the way of their trade to keep large quantities of gold 
and silver, and perhaps also of gems, had strong houses, 
strongly guarded. To them, men of smaller means, private 
gentlemen, or shopkeepers, entrusted what they dared not 
keep at home, j^aying, at first, for the privilege. In the course 
of time, the goldsmiths found that this custody of funds 
afforded a legitimate opportunity for realizing a profit, by loan- 
ing some part of these dej)osits, and receiving interest thereon. 
Then the depositors were no longer required to pay for the 
safe keeping of their treasure. In time, the bankers came, per- 
haps, to pay interest on the deposits themselves, which they 
loaned out to others, at higher rates, while the depositors 
received certificates of the value of what they had left with 
the goldsmiths, which certificates soon began to circulate from 
hand to hand. "These," says Mr. Francis, " may be consid- 
ered the first kind of bank notes issued in England," In this 
Avay the goldsmiths' street in London, Lombard street, came 
to be the bankers' street, the greatest banking street of 
the world. The ordinary bank is still, to a great extent, a 
place of safe dej^osit for money, family jewels, deeds, and 
bonds, although special institutions for safe deposit are now 
found in many large cities. 

374.— 6th. Dep.osit and Discount.— The sixth and the chief 
of the legitimate functions of the modern bank is to serve as 



352 POLITICAL ECONOMY. 

an intermediary in the loan of capital, not merely to loan its 
own capital as in the case of the Bank of Genoa and others 
that have been spoken of. 

The technical terras,deposit and discount, serve to character- 
ize this function. It is in this way that banks make their largest 
contributions to the advancement o^ commerce and industry. 
This office of banking is, however, as much overrated by some 
as it is underrated by others. Men who are not thoroughly 
versed in economical principles, when they see the Avonderful 
effects wrought by gathering into one great reservoir the 
wealth of ten thousand individuals, much of which would 
otherwise be unwisely hoarded, or unwisely apjilied, and by 
conducting it thence, as occasions require, in various directions 
through channels judiciously devised to secure the highest 
and most effective irrigation of the field of industry, are apt 
to imagine that the bank in some way creates capital. This is 
a wholly mistaken notion. The bank adds to the wealth of 
the community, only by economizing and directing it to the 
best ends. A very large part of the capital which, under the 
modern organization of industrial society, is loaned through 
the agency of banks, would, without banks, not be loaned at 
all ; while individual owners of capital who had the courage 
to undertake to deal with individual borrowers without the 
aid of a professional intermediary, such as is the bank, would 
haA'e to submit to a degree of loss that would greatly discour- 
age industry and frugality, besides, in the immediate instance, 
diminishing the capital of the community. 

So important is this function that most European writers, 
when they speak of banking, have only in mind dejjosit and 
discount, all other functions being lield to be minor and sub- 
ordinate. 

375.— 7th, Issueof Paper Money.— To an American, how- 
ever, the word, banking, is more likely to bring up the notion 
of paper money. The issue of such money is the seventh and 
the last of the banking functions which we have occasion to 
consider. 

That the making of money is not necessarily connected 
with deposit and discount, is abundantly established by the 



THE BANKING AGENCIES. 353 

consent of all writers of authority in this field, as well as by 
the example of many of the greatest deposit banks of the 
world. " Issuing," says Mr, Nicholson, " is creating money ; 
banking is managing money after it has been issued." 

" A bank of issue," says Lord Overstone, " is intrusted with 
the creation of the circulating medium; a bank of deposit and 
discount is concerned only with the use, distribution or appli- 
cation of that circulating medium. The principles upon which 
these two branches of business ought to be conducted are per- 
fectly distinct, and never can be reduced to one and the same 
rule." 

The great London joint-stock banks, a single one of which 
holds deposits rising into tens of millions, and whose ordinary 
dividends are three, four or five times as great as those of the 
Bank of England, never issue a note. ^ 

In this country, however, the word, bank through much of 
our history, has to most people signified little more than a 
place where paper money was manufactured. 

376. The Banking Agencies.— Such are the banking func- 
tions. The agencies by which these functions are performedjmay 
be grouped under four heads: (1), state banks; (2), joint-stock 
banks; (3), private banks; (4), bill-brokers and dealers in 
exchange. These agents enter in very different proportions 
to effect the banking work to be done in different countries. 
In this country, so large a part of the banking work was, from 
the beginning of the country till the outbreak of the war of 
secession, done by joint-stock banks, that it may be broadly 
said that this was the sole banking agency known to our peo- 
ple, although, in a few cities, private banking houses of high 
reputation were early started, and well maintained, and the 
business of bill-broking was not unrecognized. 



m. 

IlinDUSTRIAL CO-OPERATIOK. 

377. The Objects of Co-operation.— In Part IV. Ave have 
shown the place in the scheme of Distribution that is to be 
23 



354 POLITICAL ECONOMY. 

occupied by what is termed co-operation, should that project 
be, in any appreciable degree, realized. 

We said that the object of co-operation, in the technical 
sense in which that word has been used by economical writers, 
and even popularly used, since the Revolution of 1848, is to 
get rid of the " entrepreneur," or employer, as an industrial 
agent, and, thereupon, to divide the sum now received by him 
as " profits " among the remaining claimants upon the product 
of industry, whose niimber will thus be reduced from four to 
three: the landlord, the caj)italist, the laborer. 

It is evident that if the three parties to production besides 
the landlord are to be reduced to two, the entrepreneur func- 
tion may be performed either by the capitalist class or by the 
laboring class. The capitalists may, as such, become employ- 
ers of labor: that is, each capitalist may become an employer 
because he is a cajDitalist, and in the degree in which he pos- 
sesses capital. Whereas, now, only a small fraction of the 
owners of capital are also employers of labor. In this case, 
interest and i:)rofits would be united. In the other case, the 
laborers may become self-employed, taking all the responsi- 
bilities of production, borrowing capital according to their 
occasions for its productive use, and paying a remuneration 
therefor, on the j^rinciples heretofore determined. In this 
case, wages and profits would be united. 

The latter is the change in the predominant industrial 
organization of to-day, which is in contemplation wlien co-op- 
eration is urged. It is in the interest of the laboring classes, 
not of the owners of capital, that the entrepreneur is to be 
extruded from the industrial system, and his profits are to be 
bought to reinforce their wages. The Avhole significance of 
co-operation, as a scheme of industrial reform, lies in th's : 
that the laboring classes expect to divide among themselves 
the large amount of wealth which they now see going, day 
by day, into the possession of their employers, as their 
profits. 

378. Mistaken Conceptions of the Economists.— But, 
altliongh tlie laboring classes fully understand this, and know 
precisely what co-operation, if cfl:"ected, would mean to them, 



INDUSTRIAL CO-OPERATION: 355 

the political economists, unfortunately, by reason of that 
incomjjlete analysis of the productive agencies to which we 
have before adverted (par. 276), are unable to give an intelligi- 
ble, or even self-consistent account of co-operation. Not 
more than two or three English or American Economists* of 
reputation have given a definition of co-operation which w^ill 
bear examination. Why is this ? Because, having persistently 
refused to regard the function of the entrepreneur, they can- 
not, consistently with their own analysis of production, give 
account of a scheme whose whole object is the- elimination of 
that "functionary," as Prof. Rogers calls him ; yet, seeing as 
they do in a very hazy light, that co-operation really attempts 
something, and would, if effected, essentially change the 
existing organization of industry, they hit upon the utterly 
erroneous explanation that co-operation is to get rid of the 
capitalist ! Hardly an economist but blunders sadly at this 
point. 

379. Prof. Cairnes's Statement.— Take a writer so justly 
celebrated for clearness of thinking as the late Prof. Cairnes. 
The frequency Avith which he has been quoted in these pages 
is evidence of the high respect in which his Avork is 
held by the writer. Yet Prof. Cairnes stumbles at the very 
threshold of the subject. "The characteristic feature of 
co-operation," he says, " looked at from the economic point of 
view, is that it combines in the same person the two capacities 
of laborer and capitalist.'''' 

Now, it is not at all of the essence of co-operation that the 
laborers should be capitalists ; that they should furnish any 
portion of the capital required for conducting the operations 
to be undertaken under this system. A¥e may suppose a hun 
dred laborers uniting upon equal terms to carry on some 
branch of production, borrowing all the capital required, 

*Prof. Thorold Rogers defines CO operation justli^ as •' a scheme * * * 
by which tlie laborer can imlte the functions and earn the tcages of laborer 
and employer, by superseding the necessity of using the services of the latter 
functionary." 

Prof. Ainasa Walker had previously given expression to the same 
coucepliuu of co-operation. 



356 POLITICAL ECONOMY. 

deciding what they would produce, in wliat seasons, of what 
patterns, to what amounts ; out of the jiroceeds paying inter- 
est on their borrowed capital, in tlie first instance, and then 
dividing the remaining sum among themselves. This would 
be co-operation just as complete as if the hundred co-opera- 
tors owned the capital employed. 

It is, of course, probable that some, perhaps most, of the 
hundred co-operators would, in fact (though, as we have seen 
above, this is not of the essence of the scheme), own small 
amounts of capital ; and the aggregate sum so held would be 
put into the co-operative business, and, by that amount, the 
sum to be borrowed of outsiders would be reduced; yet, in order 
to secure justice between those co-operators who had and those 
who had not capital to put into the business, between those 
who had much and those who had little, it would be necessary 
that each associate who put capital into the business should be 
remunerated for his abstinence and for the risk of his princi- 
pal, by a payment over and above what an associate contrib- 
uting only through his labor Avould receive. In other words, 
the co-operative company would pay interest to its own mem- 
bers for the use of whatever capital they could command, and 
Avould borrow, on intei-est, the remaining capital required, just 
as the entrepreneur now does. The co-operative workmen who 
were so fortunate as to possess capital Avould lend it to their 
own com^iany, instead of lending it, as now, tlirough the 
agency of the bank or the savings institution, to emj^loyers of 
labor, perha2:»s to their own employers. 

Just so far as a laboring man joining a co-operative associa- 
tion had the courage and faith and self-control to save out of 
his earnings, he would become a capitalist,exactly as if lie were 
not a co-operator. If, however, he chose to indulge himself by 
eating and drinking up all lie earned, he Avould remain no capi- 
talist, in spite of co-ojieration. Co-operation cannot make a 
man a capitalist. Nothing can do that but saving, and while 
co-operation might, and doubtless would, encourage frugality, 
no scheme of man's devising is going to radically change 
maji's nature so that a large jiroportion of the community will 
not consume all their incomes — be those incomes large or small. 



INDUSTRIAL CO-OPERATION. 357 

We see, thus, how erroneous is Prof. Cairnes's definition. 
The aim of co-operation is to get rid of the entrepreneur, and 
divide his profits among his former workmen, who are to 
become, for the future, self-emplo3^ed, to organize themselves, 
in their own way, for industrial purposes, and carry forward 
production on their own account and nt their own risk. 

380. The Benefits Aimed at by Co-operation.— Such 
being the nature of co-operation let us enquire a little more 
minutely what advantages might reasonably be looked for 
from it, provided it were found practicable. 

Let us begin by taking the laborer's point of view: 

First: — To secure for the laboring class that lai'ge amount of 
wealth, which, as we have seen, goes annually in profits to the 
employer. If the laborers can so organize and administer 
production as to carry on industrial operations without any 
loss of efficiency or economy, they may dispense with the ser- 
vices of the entre]3reneur, and may divide his profits among 
themselves, securing, thereby, a very substantial addition to 
their means of subsistence. 

Second: — To secure for the laborer the opportunity to pro- 
duce independently of the will of an employer. Under the 
existing industrial system, it remains with the entrejDreneur 
(see par. 213) to decide, not only what shall be produced, and 
how and when and in what amounts, but also whether any 
production at all shall take place. The first and chief reason 
for hiring labor is to derive a profit. If profits are diminished, 
the employer's interest in production is reduced. If profits 
are suspended, the employer's j^ei-sonal interest disappears for 
the time. If the same circumstances which diminish or des- 
troy the entrejDreneur's gains are of a nature, as frequently is 
the case, to menace even the capital which he administers, 
either his own or that which he has borrowed and for which 
he has made himself responsible, his indifference to continued 
production may be changed into a very decided intei'est in 
stopping production, in which case the machinery and appli- 
ances under his control will lie idle, and the laborei's he has 
been accustomed to employ will remain without work and 
without wages. 



358 POLITICAL ECONOMY. 

It is true t"hat the employer may, out of compassion and sym- 
pathy for his " hands," carry on production for a while 
where no profit to himself appears, rather than leave his 
working people to such suffering as would be involved in a dis- 
bandment of his laboring force. It is also true that his selfish 
interests may induce him to carry on production for a while 
under similar conditions, in order to keep his customers from 
ficoins: to others. But neither of these considerations can be 
relied ujjon to any great extent or for any long jJCi'iod, nor 
can both together be relied upon at all as against the appre- 
hension of considerable loss on the part of the employer. In 
a state of the market which causes the employer to doubt 
whether, after paying out large sums for materials and labor, 
he will get his money back in the jDrice of the products, a sus- 
pension of production to the extent of a third, a half, or even 
more, is the most natural course for him to adopt. 

But while a body of laborers cannot reasonably complain 
that their employer curtails j^roduction on the first intimation 
of commercial disorder or of diminishing demand, co-opera- 
tion would place it within their power to keep up j)roduction 
on their own responsibility, remaining at work and selling their 
product for what it would bring. It would no longer be the 
interest of the one employer, but that of the many workmen, 
which should decide whether production were to proceed or 
not. 

381. — The foregoing are the two ch.ief benefits which the 
laboring class have looked to co-operation to secure for them. 
In addition to these, the political economist beholds in co-op- 
eration three sources of advantage. First: Co-operation would, 
by the very terms of the case, do away Avith strikes. The 
employer disappearing, the workmen becoming self-en\ployed, 
these destructive contests, which are commonly called the 
conflicts of labor and capital, but are really conflicts between 
the laborer and the entrepreneur, would disappear also. 
Second: The workman Avould be incited to greater indus- 
try and to greater carefulness in dealing >vith materials and 
with machinery. The co-operative system would give liiin a 
direct, instant, certain interest in the product. Third: In no 



INDUSTRIAL CO-OPERATION. 359 

small degree frugality would be encouraged. While, under 
the existing entrepreneur system, the workman who is frugally 
inclined may save from his earnings and invest his means, at 
interest; and while, under the contemplated co-operative sys- 
tem, the laboring class would still be obliged to apply to cap- 
italists who were not laborers, for a portion, at first by far 
the larger portion, of the means to carry on production, it 
cannot be doubted that a co-operative laborer having the 
opportunity to invest his savings at once in his own business 
would feel a much stronger inducement to frugality than does 
the wage laborer. 

382.— We may leave to the moralist or the statesman the 
additional consideration that co-operation might tend to 
improve the moral, social and political character of the work- 
man, by giving him a larger stake in society, making his 
remuneration directly dependent on his own exertions, and 
admitting him to a participation in the deliberations and 
decisions of industry. 

383. The DifiB.culties of Co-operation.— The advantages 
which would attend the successful establishment of co-opera- 
tion being so many and so great, it may be asked why has 
this scheme, proposed so long ago, sanctioned by the highest 
economical authority, appealing directly to the self-interest of 
the laboring classes, advertised extensively in endless discus- 
sions relating to labor and wages, not been immediately suc- 
cessful, on a large scale ? How is it, that, on the contrary, 
co-operation can hardly be said to have escaped failure, when 
one considers the great number of enterprises of this charac- 
ter which have been started and the few that have survived ? 

Co-operative enterprises may be divided into two classes — 
one attempting what we may call productive co-operation; the 
other what we may call consumptive co-operation. In enter- 
prises of the former class, the laborer seeks to make for him- 
self an income; in the latter he seeks to expend or consume 
that income to the best advantage; to make each dollar of his 
daily or weekly earnings go as far as possible in providing 
subsistence for himself and family. Of course, all the agen- 
cies of transportation and exchange are, as we have stated, 



360 POLITICAL ECONOMY. 

productive ; yet in the difference of aim which has been 
shown to exist between the two classes of co-operative estab- 
lishments, is found justification of the distinction just in- 
dicated. 

384. Consumptive Co-operation has had no inconsiderable 
degree of success in England, in the way of shops for the 
sale of flour, meats, groceries and other articles of domestic 
consumption, at which subscribers or members of the associa- 
tions establishing such shops buy goods at, perhaps, the usual 
prices of retail trade, generally for cash, the profits of the 
year or the season, after deducting the expenses of supervision 
and management, being divided among the members, either 
equally or in the proportion of their individual purchases. In 
the United States, the indifference of the people, even of the 
poorer Classes, towards small savings and that same unwill- 
ingness to take pains to secure a sound administration of 
trusts which has permitted municipal and State governments 
to fall so largely into the hands of unworthy persons, liave 
combined to limit very narrowly the application of the 
scheme of consumptive co-operation. Here and there, " union " 
stores (the word store being used very generally in the United 
States in the sense in which the English use the word 
shop), " granger " stores, or " Sovereigns of Industry " stores, 
fill a small place, generally for a brief period, in the general 
system of exchange; but these have never become highly 
important agencies in the public economy of the United 
States. 

385. Productive Co-operatioii. — But while consumptive 
co-operation has had a degree of success which at least proves 
it to be a practicable scheme, given only a reasonable degree 
of popular interest in its maintenance, the history of produc- 
tive co-operation alike in France, where it may be said to 
have originated, in England, and in the United States has 
been of the most discouraging, if not of the most disastrous 
character. Of numberless enterprises undertaken within the 
last thirty-five years by associations of laborers, with the 
encouragement and often the active assistance of philanthropists 
and ])olitical econoniisls, and enjoying the benefit of avast 



INDUSTRIAL CO-OPERATION. 361 

amount of gratuitous advertisement,* scarcely any remain. 
Mr. Frederick Harrison, reviewing the history of co-operative 
enterprises in England, indicates the co-operative cotton 
mills as the only true instances of the application of this prin- 
ciple on any important scale. " Some of the mills," he says, 
" never got to work at all; some took the simple form of joint- 
stock companies in few hands; others passed into the hands 
of small capitalists, or the shares were concentrated among 
the promoters. In fact, there is now^, I believe, no co-operative 
cotton mill, owned by w^orking men, in active operation, on 
any scale, with the notable exception of Rochdale." 

" Here and there," Mr. Harrison continues, " an association 
of bootmakers, hatters, painters or gilders, is carried on, upon 
a small scale, with varying success. But small bodies of 
handicraftsmen (or, rather, artists), working in common, with 
moderate capital, plant and premises, obviously establish 
nothing." 

386. The Difficulties of Productive Co-operation . — With 
such a statement, from a distinguished labor champion, of the 
present condition of co-operation, viewed as a scheme for re- 
organizing the productive agencies of modern society in the 
interest of the working classes, we repeat our inquiry. Why is 
it that co-operation, in the view of the many and great advan- 
tages which it offers, has had such partial and doubtful success? 
The answer is at hand. The difficulties of productive co-opera- 
tion are directly as its advantages. The arbitrary powers 
wielded and the vast profits enjoyed by the entrepreneur class 
make the working classes desire, naturally enough, to bring 
about an industrial order in which they shall no longer be 
subject to such exercise of authority, and in which they shall 
themselves reap the large sums of wealth which they see pass- 
ing into the hands of their employers. Yet when a body of 
laborers set up for themselves, and give their employer his 

*Tlie advertisement which the collieries of the Messrs. Bilggs, of 
England, for instance, into which some co-operative features were intro- 
duced, have enjoyed, through books, pamphlets, magazines and news- 
papers would have been cheap as a matter of business at ten thousand a 
year. 



363 POLITICAL ECONOMY. 

conge, the result very soon shows that the reason why the 
entrepreneur wields such despotic power and enjoys such large 
revenues, is that he performs a part in modern industrial society 
which is of supreme importance, in which anything less than 
the highest abilities of organization and administration involves 
comparative, if not absolute, failure. The time may come, 
in the development of the human race through the education 
and elevation of the masses, when a body of laborers, joined 
together for the purpose of co-operative production, will give 
to their industrial enterjjrises as intelligent a direction, as close 
a sujDervision, as rigid a discipline, as energetic an imj)ulse, as 
the present successful man of business gives to the enterprises 
on which his fortunes and his reputation are staked ; but not 
a single instance is on record of a body of laborers having yet 
exhibited this capacity ; and, for one, though believing thor- 
oughly, so far as politics are concerned, in a government of the 
people, by the jseople, for the people, I see nothing which 
indicates that, within any near future, industry is to become 
less despotic than it now is. The power of the master in pro- 
duction, "the captain of industry," has steadily increased 
throughout the present century, with the increasing complexity 
of commercial relations, with the greater concentration of 
capital, with improvements in apparatus and machinery, with 
the multiplication of styles and fashions, with the localization 
and sj^ecialization of manufactures. 

I shall be heartily glad to see the working classes rise to the 
height of the occasion, and vindicate their right to rule in 
industry by showing their jjower to do it. But meanwhile 
it must be distinctly undei'stood, that nothing costs the work- 
ing classes so much as the bad or commonplace conduct of 
business ; that industry must be energetically, economically, 
and wisely managed, no matter who is to do it ; and that co- 
operation will be successful only as it results in the pro- 
duction of equally good articles at equally low prices as those 
produced under entrepreneur management. 

If we have made our analysis of profits correctly, it appears 
(par. 284) that the gains of the entrepreneur are not taken 
from the earnings of the laboring class, but are wholly the 



THE TABULAR STANDARD. 363 

creation of wealth by the competent employer, whether in 
banking, in trade, or in manufacture : gains measuring the 
difference in production between the commonplace or bad, 
and the able, and shrewd, and strong management of business. 
When associated laborers are able to manage business as ably, 
strongly and shrewdly as private employers, they can dismiss 
the entrepreneur, abolish his function, and keep his gains 
themselves. 



IV. 

THE MULTIPLE OR TABULAE STANDARD OP VALUE. 

387. We saw (par. 173) that, with a view to avoiding the 
fluctuations to which even the precious metals are subject, 
through long periods of time, it has been proposed by writers 
of eminence to create a multiple or tabular standard of 
value, by joining together a number of articles, of import- 
ance in the economy of daily life, in such a way that the fluc- 
tuations of value in the several constituent articles shall largely 
neutralize each other, with the result of substantial uniform- 
ity of value in the mass thus composed. 

388. The details of the scheme as proposed by these writers 
may be stated as follows: a number of articles in general use, 
corn, beef, potatoes, wool, cotton, silk, tea, sugar, coffee, 
indigo^ timber, iron, coal, and others, shall be taken, in a defi- 
nite quantity of each, so many pounds or bushels or cords or 
yards, to form the standard required. The value of these 
articles, in the quantities sj)ecified and all of standard qual- 
ity, shall be ascertained monthly or weekly by government, 
and the total sum which would then purchase this bill of goods 
shall be, thereupon, officially promulgated. Persons may then, 
if they choose, make their contracts for future payments in 
terms of this multiple or tabular standard. For example, 
suppose I sell a house to-day, the value of which, as agreed 
upon between myself and the purchaser, is $20,000, one-half 
to be paid down at the time, two-tenths to be paid in two 



364 POLITICAL ECONOMY. 

years, three-tenths in five years, with interest on the last two 
sums. One-half of the purchase money, being payable at 
once, is paid in money, $10,000 in gold or bank notes. For 
the rest, the jjurchaser and I look at the last published state- 
ment of the government commissioner, and find the value of 
a unit of the tabular standard to be 112.50; that is, 112.50 will 
now purchase the bill of goods which form the standard. The 
purchaser then gives me two notes, one for 320 units of tlio 
tabular standard, payable in two years, and one for 480 units, 
payable in five years, with interest at six per cent, per annum, 
meanwhile. At the end of the first year, the two parties inter- 
ested look in the official gazette, and find the value of the unit 
at the time to be 112.75. There is then to be paid one year's 
interest on each note, amounting, in the case of the first note, 
to 19.2 units, which obligation is discharged by the payment 
of $244.80 in current money; and, in the case of the second 
note, to 28.8 units, which obligation is discharged by the pay- 
ment of 1367.20. 

At the end of the second year the value of a unit of the tab- 
ular standard might be ascertained to be 113, or 12.25; in 
the latter case the interest on the first note is discharged b)^ 
the payment of $235.20, and that on the second note by the 
payment of $352.80. If, however, the value of a unit has 
been ascertained to be $13, the interest on the first note will 
be $249.60, and that on the second note $374.40. 

But the principal of the first note, 320 units, is now to be 
paid. A similar computation shows that, if the value of the 
tabular standard is $12.25, the maker of the note must pay 
$3,920 to discharge his obligation; if the value of the unit be 
$13, he must pay $4,160. 

389.— Now, without waiting for the maturity of the second 
note, let us see what the use of the tabular standard has thus 
far effected. When I sold my house, two years before, I gave 
the purchaser two years' credit for two-tenths of the price. 
Had I taken the money at the time, it would have bought me 
so many pounds of beef, so many bushels of corn, so much 
iron, coal, &c. Now, at the end of the second year, what I 
receive as the stipulated two-tenths payment for the house 



THE TABULAR STANDARD. 365 

will bring me precisely the same amount of beef, corn, iron, 
coal, &c. Meanwhile the debtor has paid me, every year, as 
interest, enough to enable me to purchase six parts in a hun- 
dred of this entire list of commodities. The purchaser has 
had the advantage of obtaining credit, to that extent, but has 
derived no unearned benefit from the delay of payment; and, 
on the other hand, has been protected from any loss through 
that source. 

390.— It is to be observed regarding the proposed tabular 
standard, first, that it is not obligatory upon any one to use it; 
persons buying and selling still make their contracts in terms 
of money if they please : the government merely affords them 
the opportunity to make their contracts payable in units of 
the tabular standard, if it be worth their while to do so. 
Secondly, the only machinery of any kind required for the 
operation of this system would be a commission to ascertain the 
current prices of the articles on the official list and to publish 
the same; no new method of accounting wovild be introduced; 
interest and principal could be computed as easily as under 
the present system; and the courts would enforce the obliga- 
tion of contracts on precisely the same principles when 
expressed in units of the tabular standard, as when expressed 
in dollars or pounds sterling. Thirdly, no new medium of 
exchange would be introduced; the creditor would not be 
obliged to receive, at the maturity of the note, so many cart- 
loads of vegetable, animal and mineral products, to be hawked 
about for sale. The payment, at the maturity of the obliga- 
tion, would be made in monej^; the only effect of the intro- 
duction of the tabular standard would be to decide how much 
money at that date constituted the equivalent, in the power 
to purchase the necessaries, comforts and luxuries of life, of the 
money which would have been paid had the sale been for cash. 
Jn short, it is a means of giving and taking credit without 
receiving an unearned advantage or suffering an undeserved 
injury through fluctuations in the value of money. The worth 
of the money, be it 5 or 6 or 7 per cent, a year, is agreed upon 
in advance. This the debtor pays and the creditor receives, 
no more and no less. Whereas, under sales on credit when 



366 POLITICAL ECONOMY. 

the obligation is expressed in terms of money, the seller may 
receive 6 per cent, as the stipulated price of the year's use of 
the capital jDarted with, and, then, 2 per cent, or 4 or 6 per cent, 
besides, by reason of an enhancement in the j^urchasing power 
of money, making the real interest paid by the debtor, not 6 
per cent., but 8, 10 or 12. In another case, a part or the whole 
of the stij^ulated interest, or even more than that interest, 
may be swept away by a reduction in the purchasing power 
of money; and the creditor, receiving the expressed price of 
his goods at the end of the term of credit, will find that 
he has, in effect, given the use of his capital for a year for 
less than the stipulated rate of interest, perhaps for nothing, 
possibly has lost even a portion of the principal, so far as its 
power to command the services or the products of others is 
concerned. 

391. Such being the contemplated advantages of the system 
of a tabular or multiple standard, the question whether the 
use made of the sj^stem, if established, would be worth the 
small degree of effort necessary to establish it, is a question 
which could only be answered after trial. The mere fact that the 
scheme was sound and the advantages of its adoption unques- 
tionable, would not of itself be sufficient to secure any consid- 
erable application of this standard to the actual operations of 
trade. It took hundreds of years for the Arabic figures to drive 
the abominably clumsy Roman figures out of the counting 
rooms of great merchants and bankers ; and the slow progress of 
the metric system, even in this age of innovations and of quick 
communication, affords a measure of the difficulty of sup- 
planting one habit of trade by another, however much supe- 
rior. 

Tlie practical limits of this system, Avcre it to be once intro- 
duced and tried, are fairly a matter of doubt. Prof. Jevons 
deemed it practicable to extend this mode of determining the 
claim of the creditor, the obligation of the debtor, to ordi- 
nary commercial paper having three months or more to run. 
I do not myself apprehend that the system would trench, in 
any considerable degree, on the field of so-called commerce. 
The merchant, buying every day and selling every day, giv- 



THE TABULAR STANDARD. 367 

iug notes with one hand and taking thera with the other, may 
fairly look to see his losses, through fluctuations in the pur- 
chase power of money, offset by his gains through the same 
source; or, in a worse result, he is in a position, by greater 
energy and economy, to make good his capital. It is essen- 
tial, or at least highly important to the conduct of business, 
in the modern organization of industrial society, that the mer- 
chant or manufacturer shall be able to tell just where he 
stands, at any time; to strike an exact balance between assets 
and liabilities. But this would not be possible with the tabu- 
lar standard. A note for 400 units, payable in Sej^tember, 
might not offset a note for 400 units receivable in August or 
October; the difference might be small, it might also be large. 
It would thus be impracticable for the man of business to cast 
uj), at a moment, the results of any given transaction, or 
ascertain precisely his own standing. By the very description 
of the system, every note given or taken would have to be 
liquidated. 

" Commerce will not tolerate any such obstruction and the 
scheme, so far as this application is concerned, may be dis- 
missed at once. Comnier(;e will do the best it can with the 
use of money and of credit expressed in terms of money. 
Nothing is more characteristic of the commercial spirit than 
the disposition to take the evil with the good, roughly to 
strike the average of gain and loss, promptly to charge-off 
bad debts, always looking on towards the future, never regret- 
ting the past. This spirit leads, doubtless, into many errors, 
but it is the very life of commerce. 

392. " For what classes of contracts, then, might the multiple 
tender be advantageously employed ? 

" Certainly the need of such a standard of deferred payments 
is most imperative in the case of those who are not in the 
way of repairing any losses they may suffer through fluctua- 
tions in the value of money; upon whom the full effects of 
depreciation fall directly and remain without relief. And 
while the advantages of such safisguards upon the 
value of debts here rise to their maximum, the obstruction 
sinks here to a minimum. In permanent investments of prop- 



368 POLITICAL ECONOMY. 

erty not the least inconvenience will be encountered by the 
scheme of a multiple tender, which might be extended to the 
cases of all who have definitively retired from active life, carry- 
ing away with them all they will ever have to support old age 
and provide for their children; to the cases of trustees and 
guardians, under a solemn responsibility in the care of estates, 
where loss is more to be dreaded than gain to be desired; to 
the cases of institutions whose funds are sequestered from the 
stock of active capital, for pious and charitable uses. The 
funds of savings banks might be put under the same safe- 
guard, and government loans might also be issued in terms of 
the multiple tender." * 



V. 

TKADES UNIONS AND STRIKES. 

393. _It has been shown (pars. S13-6) under the title of 
Distribution, that the question, whether any law or institution 
does or does not promote the freedom of industrial move- 
ment enjoyed by the community, is a question not to be 
decided a priori, but upon a consideration of the actual 
effects of such a law or institution, comparison being made 
not between the state which Avill result therefrom and an 
ideal state of perfect economic mobility, but between the new 
condition and the condition which does exist or probably 
Avould exist without that law or institution. 

Let us take the case of Trades Unions, so-called, which 
undertake, through agreements among themselves and perhaps 
simultaneous strikes against their employers, to fix wages, 
regulate the hours of labor, and control many of the various 
details of industry. To the first suggestion of such associ- 
ations, the economist promptly and properly objects that all 
combinations in the sphere of economics are opposed to compe- 

* " Mouey, Trade and Industry." 



TRADES UNIONS AND STRIKES. 369 

titioii. The objection is well taken, and it remains for the 
advocate of trades unions to show sufficient cause for thus 
obstructing competition. The economist further alleges that 
such associations are liable, are even likely, to fall under the 
control of demagogues, who will use their power to bully or 
harass employers, to make unreasonable demands, and to 
precipitate labor contests, in which the interests of all classes 
will be sacrificed to the self importance of a few managers. 
This point, again, is well taken. Tha'. liability, that likelihood, 
exists, and the advocate of trades unions is bound to show no 
small degree of practical benefit resulting from such associa- 
tions, to offset the mischief they are almost certain to commit 
in the ways indicated. 

394.— On the other hand, the advocate of trades unions 
alleges that these associations, though in form opposed to 
comjjetition, and though subject to many abuses, do yet, in 
certain states of industrial society, at least, assist the la- 
borers as a class to assert their interests in the dis- 
tribution of the product of industry. This claim is not, 
on the face of it, unreasonable. 

It is of course true, if we have correctly discerned the 
action of competition, that such an association cannot enable 
a body of laborers to act better in respect to the interests 
of each and of all of them, than could be done by each man 
seeking his own interest solely upon his own initiative. 
We have seen (par. 305-6) that competition, perfect compe- 
tition, affords the ideal condition for the distribution of wealth. 
But as we saw in the case of the audience of a theatre that 
had taken fire, the action of men in concert and under disci- 
pline, while it can never be wiser than that of men acting 
coolly and intelligently for themselves, may be far wiser than 
the action of men stricken with panic and hurried into a sense- 
less, furious rush. Respecting trades unions, the question is 
not, whether joint action is superior to the individual action 
of persons enlightened as to their industrial interests, but 
whether joint action may not be better than the tumultuous 
action of a mass, each pursuing his individual interest with 
more or less of ignorance, fear and passion. 
24 



370 POLITICAL ECONOMY. 

Now, with a body of employers, few, rich and powerful, 
having a friendly understanding among themselves and act- 
ing aggressively for the reduction of wages or the extension 
of the hours of work, and, on the other side, a body of labor- 
ers, numerous, ignorant, poor, mutually distrustful, while 
each feels imder a terrible necessity to secure employment, 
else wife and child will starve, who shall say that such a body 
of laborers might not be better able to resist the destructive 
pressure from the employing body, if organized and disci- 
plined, with a common purse and with mutual obligations 
enforced by the public opinion of their class, than if each for 
himself were to measure .jtrength with his employer ? 

I said, destructive pi-essure, for we saw that the pressure of 
competition, if it be unequal, may lead to the degradation of 
the laboring class (par. 306-7) just as the pressure of the 
atmosphere, which is imperceptible when equally applied over 
all sides, becomes crushing and destructive Avhen the air is 
withdrawn from within or from beloAv; just as the waves over 
which and through which a ship rides unharmed, when herself 
free to move, become crushing and destructive, let once the 
ship's bow be jammed between rocks or lodged in the sands. 

395. The Early English Strikes. — For myself, I enter- 
tain no doubt that the early strikes in England, which fol- 
lowed the repeal, in 1824, of the iniquitous Combinations acts, 
were essential to the breaking up of the power of custom and 
fear over the minds of the working classes of the Kingdom. 
For centuries it had been a crime, by statute, for workmen to 
combine to raise wages or shorten the hours of labor, 
while masters were left perfectly free to combine to 
lower wages or lengthen the hours of labor to any 
extent.* The beginning of the century found the laboring 
classes of England almost destitute of political franchises, 
unaccustomed to discussion and the free communication of 
thought, tax-ridden, poverty-stricken, illiterate. What else than 
the series of fierce revolts, the rebellions of down-trodden 

* " Wc have no acts of Parliameut," wrote Adam Smith, in 1776, 
" against combining to lower the price of work, but many against com- 
bining to raise it." 



TRADES UNIONS AND STRIKES. 371 

labor, which followed Huskisson's act of 1824, could, in an 
equal period of time, or, indeed, at smaller cost, have taught 
the employers of England to respect their laborers, and have 
taught the laborers of England to respect themselves ; could 
have made the latter equally confident and self-reliant in 
pressing home a just demand, or made the foi'mer equally 
solicitous to refuse no demand that could reasonably be con- 
ceded ? 

For, be it remarked, perfect competition, which affords the 
only absolute security j)ossible for the equitable and beneficial 
distribution of the jitroducts of industry, requires that each 
and every man for himself should unremittingly seek and 
unfailingly find his best market. If for any reason, whether 
from physical obstruction or legal inhibition, or from his own 
poverty or weakness of will or ignorance, or through distrust 
of his fellows or a habit of submission to his employer or 
his social superiors, any man fails, in fact, to reject the lower 
price and to seize the higher price, the rule of competition is, 
so far as that individual is concerned, violated ; the immunity 
against deep and permanent economical injury which is afforded 
by competition is lost ; the man may be crushed in his spirit, 
in his health, in his habits of life, and may thus sink finally 
and hopelessly to a lower industrial grade. The industrial 
history of mankind is full of examples of large populations thus 
broken down by the force of a competition to which they were 
unequal, until they have become pauperized, brutalized and dis- 
eased beyond the power of any purely economical causes to 
raise them upwards and restore them to industrial manhood. 

396. Strikes Liable to Grave Abuse. — In claiming thus 
that strikes may, in certain states of industrial society, in their 
ultimate effect really aid the laboring classes in their efforts to 
obtain a fair share of the product of industry, although in 
form violating the rule of competition, let me not be misun- 
derstood. To strikes I assign much the same function in 
industry which insurrections have performed in the s^^here of 
politics. Had it not been for the constant imminence of 
insurrection, neither France nor England would through sev- 
eral centuries have made any progress towards freedom, or even 



373 POLITICAL ECONOMY. 

have maintained their inherited liberties. Insurrection alone 
imposes bounds upon tyi'anny, unless, indeed, a worse check 
upon despotic power is found, as in Russia, in assassination, 

Strikes are the insurrections of labor. They are, of course, 
wholly a destructive agency. They have no creative 
power, no healing virtue. Yet, as insurrections have 
played a most important part in the political elevation of 
downtrodden peoples, through the fear they have engendered 
in the minds of oi^pressors, or through the demolition of out- 
worn institutions which have become first senseless and then 
pernicious, so strikes may exert a most powerful and salutary 
influence in breaking up a crust of custom which has formed 
over the remuneration of a body of laborers, or in breaking 
through combinations of employers* to withstand a legiti- 
mate advance of wages, where the isolated efforts of individ- 
uals, acting with imperfect knowledge, with scanty means, 
and under a dread of personal proscription, would have 
proved inadequate. Doubtless even more important than 
the specific objects realized by strikes, has been the ad- 
vantage resulting from the permanent impression produced by 
these insurrections of labor upon the minds and the temper of 
both employers and employed. The men have acquired confi- 
dence in themselves and trust in each other; the masters have 
been taught respect for their men, and a reasonable fear of 
them. 

Nothing quickens the sense of justice and equity like the 
consciousness that unjust and inequitable demands or acts are 
likely to be promptly resented and strenuously resisted. 
Nothing is so potent to clarify the judgment and sober the 
temper, in questions of riglit or wrong, as to know that a 
mistake will lead to a hard and a long fight. 

397. What is the Failure of a Strike?— Nor must it be 
tliought that because strikes of ten, perhaps we might say com- 
monly, fail of their immediate object, they are, therefore, nuga- 
tory. Many an insurrection has been put down speedily, j^erhaps 

* " Masters are always aud everywhere iu a sort of tacit, but constant 
and uniform, combination, not to raise the wages of labor above their 
actual rate." — Adam Smith. 



TRADES UNIONS AND STRIKES. 373 

with great slaughter, which has been followed by remission of 
taxes, by redress of grievances, by extension of charters and 
franchises. It may be considered doubtful whether the suc- 
cessful or the unsuccessful insurrections of England have done 
more to advance English liberties. Of the rising of the peas- 
antry against Richard II., which was suppressed in a few days, 
Prof. Thorold Rogers says: "The rebellion was put down, 
but the demands of the villains * were silently and effectually 
accorded; as they were masters for a week of the position, 
the dread of another servile war promoted the liberty of the 
serf." So even an unsuccessful strike may make employers 
more moderate, considerate and conciliatory, as they recall 
the anxieties, the struggles and the sacrifices of the conflict 
from which they emerged, in the immediate instance, vic- 
torious. 

Yet, as insurrections mark off the first stages of the move- 
ment towards political freedom, so strikes belong to the first 
stages of the elevation of masses of labor, long abused and 
deeply debased. Happy is that people, and proud may they 
rightfully be, who can enlarge tbeir franchises and perfect 
their political forms without bloodshed or the threat of vio- 
lence, the long debate of reason resulting in the glad consent 
of all; and in like manner, no body of laborers can get for 
themselves by extreme measures so much of honor and of 
profit as they will when, through cultivating moderation, good 
temper and the spirit of equity, they attain the capability of 
conducting their probably xinavoidable disputes with the 
employing class to a successful conclusion without recourse 
to the brutal and destructive agency of strikes. With politi- 
cal rights such as are enjoyed by all classes in the United 
States, with universal education, free land, the quick com- 
munication of ideas, the cheap transportation of persons and 
effects, and the abundant opportunities offered for accumulat- 
ing and investing savings, it is a shame to us, as a people, that 
we have not yet made for ourselves a better way out of our 
industrial disputes. 

* Persons holding land by a servile tenure. 



374 POLITICAL ECONOMY. 

398.— Factory Acts.— We should apply the same tests to 
any existing or projected legislation intended for the relief of 
the laboring classes, such as acts restricting the hours of labor, 
providing for the safety of operatives against accidents from 
contact with machinery, directing the sanitary inspection of 
workshops and factories, prohibiting the employment of chil- 
dren of tender age or of women underground, or in work 
unsuited to their sex, or immediately before or after confine- 
ment. The one question in regard to each such measure is 
not whether its intention is philanthropic or otherwise; not 
even whether it does or does not, in form, violate the principle 
of competition; but whether it does, in effect,* and in the 
large, the long, result, leave the laboring classes better off or 
worse off, as to the ability and disj)osition to seek and to find 
their best market; whether, in fact, in the condition of indus- 
trial society then and there existing, it j^romotes or retards 
competition. 

The beginning of the present century found children of five, 
and even of three years of age, in England, working in fac- 
tories and brick-yards; women Avorking underground in mines, 
harnessed with mules to carts drawing heavy loads; found the 
hours of labor whatever the avarice of individual mill-owners 
might exact, were it thirteen, or fourteen, or fifteen; found no 
guards about machinery to protect life and limb; found the air 
of the factory fouler than language could describe, even could 
human ears bear to hear the stor3\ 

399.— English Factory Legislation.— The factory legisla- 
tion of England, the necessity and economical justification of 
which the Duke of Argyle has called one of the great discov- 
eries of the century in the science of government, began in 
1802, with an act which limited the hours of labor in woolen 
and cotton mills to twelve, exclusive of meal times, imposed 

* "In discussing these matters, we need, above all tilings, discrimina- 
tion. One hundred modes of government interference might be mentioned 
of which fifty might be very desirable and fifL)^ condeninable. In each 
case, as I contend, we must look to the peculiar aim, purpose, means 
and circumstances of the case." — Prof.Jemns: The State in Relation to 
Labor. 



TRADES UNIONS AND STRIKES. 375 

many sanitary regulations upon the working and sleeping 
rooms of operatives, required tlie instruction of children dur- 
ing the first four years of ajjprenticeship, and provided an 
official inspection of establishments for the due execution of 
the law. Further legislation was had in 1816 and 1831; while 
in 1833 was j)assed the important act known as 3d and 4:th 
William IV. (ch. 103), which forbade night work in the case 
of all persons under eighteen years, and limited the labor of 
such persons to twelve hours, inclusive of an hour and a half 
for meals; prohibited the employment of children under nine 
years of age — while between the ages of nine and thirteen, 
the hours of labor were reduced to eight; prescribed a certain 
number of half-holidays, and required medical certificates of 
health on the admission of children to factories. Numerous 
acts subsequent to this of 1833 have enlarged the scope of 
these provisions and extended them to other classes of work- 
shops and factories; while, with the good faith and thorough- 
ness characteristic of English administration of law, a rigid 
and relentless inspection compels a j^unctilious compliance 
with these provisions in every workshop and factory of the 
kingdom.* 

400. Economists Oppose Factory Legislation.— Unfortun- 
ately for political economy, its professors in the Universities, 
in Parliament, and in the press, generally ranged themselves in 
opposition to this legislation. Acting U25on a series of arbitrary 
assumptions which fell far short of the facts of human nature, 
the English economists insisted upon attributing to the indivi- 
dual initiative of the laborer, however miserable and blind and 
weak, however overborne by circumstances and bound to his 
place and work by poverty, ignorance and inertia, all that 
economical virtue which belongs to the individual initiative of 
tlie laborer when fully alive to his own interest, alert in seek- 
ing the highest price for his services or commodities, and able 
to move freely to his best market without hindrance from any 

* The principle of the English Factory Acts Jias been slowly extended 
over the greater part of Europe. A summary of the chief provisions 
of law in the several countries will be found in The Wages Question, 
pp. 360-3. 



376 POLITICAL ECONOMY. 

source, whether within or without himself. They asserted 
that labor was fully competent to protect itself against abuses 
if left free by law. They asserted that all restrictions upon 
industry are obstructive, failing to see that while restriction 
and regulation are obstructive, as against an imagined con- 
dition of perfect practical freedom, these may actually increase 
the ease and readiness of movement in a state where obstruc- 
tions exist on every hand. They argued that to limit the 
power of the operative to sell his labor must, in the end, 
diminish the price he will get for it, not seeing that, just as a 
crutch, while it is only a liindrancc and a burden to a sound 
man, may keep a cripple from falling to the ground, and may 
even enable him slowly and feebly to walk, so a restriction 
ujDon contracts for labor may correspond to an infirmity of the 
laboring classes under certain moral and physical conditions, 
in such a way as to give them a greater freedom of movement 
than they would have without it. 

I said that it was unfortunate for political economy that 
the professional economists of England opposed the factory 
acts. It did not prove to be unfortunate in any other respect, 
since the acts passed promptly in sjjite of that oj^position. 
But it had the effect to set both men of affairs and the masses 
of the people against political economy. 

The latter were alienated by what they deemed either indif- 
ference to human suffering or subserviency to the interests of 
capital. The former saw how far wrong the pursuit of this 
so-called science could carry intelligent men, on a practical 
question. To them this seemed to justify the contempt so 
generally entertained by men of affairs for "theorists." The 
cause of the trouble was not that the economists were theorists, 
but that they were bad theorists. Their theories did not cover 
the facts of the case they had undertaken to deal Avith. The 
economic men* they had created for the purposes of their 
reasoning were no more like Englishmen than they were like 
the Houyhnhnms of Swift. 

That legislation prohibiting factory labor in excess of what 

* See pars. 19-20. 



THE WAGE-FUND DOCTRINE. 377 

is compatible with health and strength, having due respect to 
conditions of age and sex, requiring the observance of sanitary 
principles, and protecting working people against abuses as to 
the time and form of paying wages,* maybe practically bene- 
ficial in a high degree, has long passed beyond controversy 
among the statesmen of nearly all civilized countries. If 
political economy objects to such legislation, so much the 
worse, as'I said before, for political economy. But I hojse 
there has been shown sufficient reason for holding that no such 
opposition of principle exists; and that both the largest j)ro- 
duction and the most equitable distribution of w^ealth may be 
subserved by legal regulations wisely conceived to meet the 
grave and perhaps incurable infirmities of manufacturing 
populations. 

VL 

THE DGCTEIlSrB OF THE WAGE-FUND. 

401.— The Doctrine Stated.— In opening the subject of 
Wages, I passed by without discussion the once generally re- 
ceived doctrine — generally received, that is, in England and 
America — of a fund set apart for the j)ayment of wages, and 
proceeded at once to state affirmatively the views I hold 
regarding the hired laborer's share in the product of industry. 

Inasmuch, however, as the student will find this doctrine 
explicitly taught in the great majority of all the systematic 
treatises on the shelves of our libraries, it seems important that 
it should be dealt with critically. 

The doctrine of a Wage-Fund is, in substance, as follows : 

There is, in any country, at any time, an amount of wealth 
set apart by economic forces for the payment of wages. 
The ratio between the aggregate capital and the portion thus 

* A long series of parliamentary battles have been fought over the ques- 
tion of Truck, that is, the payment of wages in commodities instead of 
the money of the realm. By the act of 1833, already referred to, this 
practice (except in the form of giving "board " as a part of wages) was 
prohibited in respect to mining and manufacturing industry generally. 



378 POLITICAL J-.CONOMY. 

devoted to the payment of ^^'agos, is not necessarily the 
same in different countries at the same time, or in tlie same 
country at different times. That ratio n\ay vary with the 
conditions of industry and the habits of the peopk^ ; but at 
any given time, the amount of the Avage-fund, under the con- 
ditions existing, is determined in the amount of capital.* 
AVere the amount of capital greater, the wage-fund would be 
greater, and greater in precisely the same proportion. AVere 
the amount of that capital smaller, the wage-fund would be 
smaller, and smaller in precisely the same pro})ortion. 

The wage-fund, therefore, may be greater or less at another 
time ; but at the time taken, it is definite. The amount of it 
cannot be increased by force of law, or of public opinion, or 
through sympathy and comiDassion on the part of employers, 
or as the result of appeals or efforts on the part of the working 
classes, f 

The sum so destmed to the pajj^ment of wages is distributed 
by competition. If one obtains more, another must, for that 
reason, receive less, or be kept out of employment. Laborers 
are paid out of this sum, and out of this alone. The whole of 
it is distributed without loss, and the average amoimt received 
by each laborer is, therefore, detei'mined precisely by the ratio 
existing between the wage-fund and .the number of laborers, 

* "There is supposed to be, at auy given iustaut, a sum of wealth 
which is uuconditioually devoted to the piu-meut of wages of hibor. 
This sum is not regaidcd as unalterable, for it is nugmented by saving 
and increases with the progress of wealth; but it is reasoned upon as, at 
any given moment, a predetermined amount." — J. 8. Mill: — The Fort- 
nigltUy. May, 18G9. 

f " That which pays for labor in every country is a certain portion of 
actually accumulated capital, wliich cannot be increased by the proposed 
action of government, uov by tlie iutluence of public opinion, nor by 
combinations among the workmen themselves. There is, also, in every 
country, a certain number of laborers, and this number cannot be dimin- 
ished by the proposed action of government, nor by public opinion, nor 
by combinations among themselves. Tliere is to be a division now, 
among all these laborers, of the portion of capital actually there present." 
— Prof. A. L. Perry, Pol. Econ. In the later editions of his admirable 
treatise, Prof. Perry importantly modifies bis statement of tlie law of 
wages. 



THE WAGE-FUND DOCTRINE. 379 

or, as some writers have preferred to call it, between capital 
and population.* 

The wage-fund, at any given time, being thus determined, 
the rate of wages will be according to the number of persons 
then applying for employment, f If these be more, wages 
will be low ; if these be fewer, wages will be high. 

It thus appears that the wage-fund — the aggregate amount 
to be distributed as Avages — is at any given time, irrespective 
alike of the number and of the industrial quality of the wages 
class. The average rate of wages is determined exclusively by 
a comparison of the amount of that fund with the number of 
the wages class. The industrial quality of the wages class 
has nothing to do, at the time, with their wages. 

402. The Doctrine Esamined. — What shall we say of 
this doctrine of a Wage-Fund ? Several objections may be 
urged against it, any one of which would be fatal. 

First. The doctrine assumes that wages are always and 
necessarily paid out of caj)ital, the results of past accumula- 
tions. As a. matter of fact, wages in England, where this 
theory of wages originated, were, at that time, early in the 
century, paid, financially speaking, out of capital generally, if 
not universally. That condition of things has continued in 
England to the present time. 

Why was this ? Was it of the essence of the matter, or an 
accident ? 

I answer, wages were advanced by capital in England, 
because capital had there been accumulated to so great extent 
that employers were able to lay down the whole of the wages 
to be paid as soon as the service was rendered, even before 

* " The circulating capital of a country is its wage-fund. Hence, if 
we desire to calculate the average money wages received by each laborer, 
Ave have simply to divide the amount of this capital by the number of 
the laboring population." — P/'5/. R. Faiccett: The Economic Position of 
the British Laborer. 

f " More than that amount (the wage-fund), it is assumed, the 
wages-receiving class cannot possibly divide among them ; that amount, 
and no less, they cannot but obtain : so that, the sum to be divided being 
fixed, the wages of each depend solely on the divisor, the number of par- 
ticipants. "—J. S. Mill : The Fortnightly. May, 1869. 



380 POLITICAL ECONOMY. 

the products were harvested or marketed, while, at the same 
time, wages were and had long been so low that the laborers 
had been able to save little or nothing out of their earnings 
in the past, and were consequently obliged to look to their 
employers for subsistence, almost from the moment they 
began to work. 

But during the same period a very different relation between 
laborer and employer, as regarded the payment of wages, 
existed in the United States, Employers were paying their 
laborers by the year, giving them their wages, in full only 
when the croj)S were harvested or the goods marketed, and 
meanwhile making such advances as their means allowed, or 
as were required by the varying wants of their workmen, no 
small part of whom had saved enough out of their liberal 
earnings of former years to support themselves and their 
families until the. year's wages should be paid. 

In other words, the industrial conditions were more favor- 
able to the payment of wages in the United States, while in 
England the financial conditions were more favorable. But 
it is the industrial conditions which determine the amount of 
wageSj the necessaries, comforts and luxuries which the laborer 
receives for his services ; the financial conditions only deter- 
mine the manner and time of payment, whether at once or on 
a future day, whether in money or in goods. 

403. Wages may be advanced out of Capital; but are 
paid out of the Product.— But even if, in fact, all wages 
were laid down by the employer as soon as services were render- 
ed,before the crops were harvested or the goods marketed, it 
would not follow that the existence of capital furnished the 
reason for the employment of labor, or that the amount of 
that capital furnished the measure of the wages to be paid. 

An employer pays Avages to purchase labor, not to expend a 
fund of wliich he may be in possession. He purchases labor, 
not because he Avishes to keep it emijloyed, but as a means 
to the production of Avealth. He produces wealth, not for the 
sake of producing it, but with a view to a profit to himself, 
individually, in that production. 

If a person have wealth, that, of itself, constitutes no reason 



THE WAGE FUND DOCTRINE. 381 

why he should expend any portion of it on labor, on machinery, 
or on materials. It is only as he sees that he can increase that 
wealth through production, that the impulse to employ it in 
those directions is felt. But for the profits by which he hopes 
thus to increase his store, it would be alike easier and safer for 
him to keep his wealth at rest than to put it in motion for the 
benefit of others. The mere fact that the employer has capital 
at his command, no more constitutes a reason why he should 
use it in jDroduction, when he can get no profits, than the fact 
that the laborer has arms and legs constitutes a reason why he 
should work when he can get no wages. 

We repeat : the employer purchases labor with a view to 
the product of labor ; and the kind and amount of that pro- 
duct determine Avhat wages he can afford to pay. He must, 
in the long run, pay less than that product, less by a sum 
which is to constitute his own profits. If that product is to 
be greater, he can afford to pay more ; if it is to be smaller, 
he must, for his own interest, pay less. 

It is, then, for the sake of future production that the labor- 
ers are employed, not at all because the employer has posses- 
sion of a fund which he must disburse ; and it is the value of 
the product, such as it is likely to j^rove, which determines the 
amount of the wages that can be paid, not at all the amount 
of wealth which the employer has in possession, or can com- 
mand. Thus, it is production, not caj^ital, which furnishes the 
motive for employment and the measure of wages. * 

In saying that production furnishes the measure of wages,it is, 
of course,not to be understood that wages equal the product of 
industry. The advocate of the wage-fund asserts that capital fur- 
nishes the measure of wages,meaning that the amount to be paid 
in wages is some part of the aggregate capital of the country,the 
ratio between the two varying from time to time, indeed, but 
being, for any given moment, fixed by the existing conditions 
of industry. So I say, production furnishes the measure of 
wages, meaning that the amount to be paid in wages is some 
part of the product of industry, the ratio between the two 

* Walker — The Wages Question. 



383 POLITICAL ECONOMY 

varying, probably, from time to time, from causes innumer- 
able, but being, for any given moment, fixed by existing 
conditions. 

404.— No Wage-Fund Irrespective of tlie Industrial Qual- 
ity of the Laborers. — But if production furnishes the measure 
of wages, the amount so to be paid cannot be irrespective of the 
industrial qixality of the laboring class. If we assume that 
upon a cultivated island are tools and carts and animals for 
draught, and other forms of capital adequate for a thousand 
laborers, the production will vary within a very wide range 
according to the industrial quality of the laborers using that 
capital. If we suppose them to be East Indians, we shall 
have a certain annual product ; if we suppose Russian peas- 
ants to be substituted for East Indians, we shall have twice 
or three times that product ; if we suj)pose Englishmen to be 
substituted for Russians, we shall have the product again mul- 
tiplied two or three fold. An Englishman will do from three 
to thirty times as much work in a day as a Bengalee, accord- 
in ar as the nature of the work makes smaller or lararer de- 
mands ujDon the skill and strength of the laborer.* By the 
wage-fund theory, the rate of wages would remain the same 
through these changes, inasmuch as the aggregate capital of 
the island and the number of laborers in the market would be 
unchanged, the only difference being found in the substitution 
of more efficient for less efficient laborers. According to the 
view here advanced, on the contrary, the amount to be paid 
in wages should and would rise with the increased production 
due to the higher industrial quality of the laboring popula- 
tion. Whether it would rise in exact proportion thereto is 
not the question we are now considering. 

405. No Wage Fund Irrespective of the Number of 
Laborers.— But, further, if production furnishes the measure 
of wages, the amount to be so paid cannot be irrespective of 

the number s of the laboring class. 

* Earl Stanhope, in bis History of England, states that an English 
wood sawyer will perform as much work as thirty-two East Indians. 
An English weaver will tend three times as many looms as a Russian 
weaver, the English looms being run, moreover, at a much higher 
speed 



THE WAGE-FUND DOCTRINE. 383 

By the wage-fund theory, the amount that can-'and will be 
paid in wages is a predetermined dividend, the number of 
laborers being the divisor, and the average wages the quotient. 
Just in proportion as the number of laborers is diminished 
will the average wages be raised; just in proportion as the 
number of laborers is increased, will the average wages be 
lowered. " There is no use," writes one of the cleverest expo- 
sitors of this doctrine, " in arguing against any one of the 
four fundamental rules of arithmetic. The question of 
wages is a question of division. It is complained that the 
quotient is too small. Well, then, how many ways are there 
to make a quotient larger ? Two ways. Enlarge your divi- 
dend, the divisor remaining the same, and the quotient will be 
larger; lessen your divisor, the dividend remaining the same, 
and the quotient will be larger." 

This theory that the number of laborers constitutes the 
divisor of a predetermined dividend, is manifestly erroneous, 
because it leaves out of account the influence uj)on production 
of the condition of Diminishing Returns, or the reverse, in 
agriculture, as well as the mechanical effects of the division 
of labor. 

Let us, first, suppose that the island ocoujDied by the body 
of one thousand laborers before referred to, contains a great 
breadth of choice arable land, of which the laborers have 
been hitherto able to cultivate but a small portion. If, now, 
the number of laborers be increased twenty per cent, with a 
corresponding increase of capital, production will be more 
than proportionally increased (see j^ar. 44,) through the effect 
of the division of labor and the union of forces in production. 
Here, again, we find the wage-fund theory at fault. So great 
is the virtue of this cause that an increase of laborers — before 
the condition of diminishing returns is reached — might be 
followed by an increase of production even in the lack of a 
proportional increase of capital, or, indeed, of any increase 
at all. It is insight into this condition of production that has 
caused the exertions put forth by the Western and Southern 
States of this Union, to attract immigration. Capital they 
want, and they would be glad to have immigrants with 



384 POLITICAL ECONOMY. 

capital; but they want immigrants, anyhow. These communities 
are not acting foolishly. They are not calling in additional 
laborers to divide with them a predetermined product. They 
know that the product will increase as the producers increase; 
indeed, that, in their present situation, tlie product will 
increase even faster than the producers, and that, therefore, 
each producer will have more and not less by reason of the 
arrival of laborers from abroad. Working men have come to 
us from every quai'ter of the globe, and constantly has the 
existing body of working men been benefited by the acces- 
sions. Some — especially the Norwegians and Swedes — have 
brought with them small amounts of capital, and have been 
doubly welcome. But, however they have come, were it with 
a bundle on a stick, there has been room enough and work 
enough and wages enough for all. 

406. — But now let us take the condition of diminishing 
returns in agriculture, that state where, if anywhere, it might 
be supposed the wage-fund theory Avould hold good. In sucli 
a condition, the soil, as we have seen (par. 44,) fails to 
respond adequately to new applications of labor; the product 
falls off, not absolutely, but relatively; and, thus, while the 
aggregate crops are larger through the incoming of new 
laborers, the actual amount falling to each laborer is dimin- 
ished. Wages fall. But does this hapj)en in accordance with 
the economical doctrine we are considering ? No ; per capita 
wages fall, because per capita production is diminished, 
although often this is coincident with an actual increase of 
capital. 

It would be brutal to inflict further blows upon a body 
so exanimate as the theory of the Wage-Fund. The natural 
and the literary history of this doctrine will be found at length 
in an article in the North American Review^ for January, 
1875. 



THE UNEARNED INCREMENT OF LAND. 385 

VII. 

THE UNEARNED INCREMENT OF LAND. 

407. The Law of Hent Ee-Stated.— We have seen what 
is the nature of Rent. It represents the surplus of the pro- 
duce over the cost of cultivation on the poorest lands actually- 
contributing to the supply of the market at the time. 

We saw (par. 242-3) that, conceding the private ownership 
of land, rent is merely a question between landlord and ten- 
ant ; that so far as economic forces are concerned, rent must 
remain in the hands of the landlord ; that, setting violence 
aside, it can only come into the hands of the tenant by gift 
from the landlord ; that, were it, by virtue of the landlord's 
generosity, to reach the tenant, it would, so far as economic 
forces are concerned, go no further : it could only be carried 
to the agricultural laborer or to the consumer of agricultural 
produce, by another gift o-r series of gifts. 

408. The Equities of Rent, as between Landlord and 
Tenant.— So much for the Economics of Rent ; let us look ^ 
moment at the equities of it. 

Certainly, as between the landlord and the tenant, the latter 
can set up no claim to any portion of rent. This is shown in 
the following way : It is, as we have seen, of the very essence 
of rent that it represents, and is measured by, the surplus of 
produce over the cost of cultivation on the poorest (or most 
distant) lands under cultivation for the supply of the same 
market. Now, these poorest or most distant lands have occu- 
piers who are clearly, so far as their industrial position is con- 
cerned, just as meritorious as those who cultivate the better 
lands or the lands nearer the market. The several classes of 
tenants are only put on an equality when rent is exacted 
according to the Ricardian formula. It would clearly be ineq- 
uitable that one body of occupiers should receive back, in the 
price of their products, only the actual cost of cultivation, 
while another should receive large suras in addition to this, as 
would be the case were rents to be remitted by landlords to 
tenants. 

409. As between Landlord and the Agricultural Laborer. 
— In the same way it may be shown that the agricultural 
25 



380 POLITICAL ECONOM Y. 

laborers on lands which bear a rent have no claim, in equity, 
to any portion of that rent. Why should they receive any 
more for their services than the laborers who cultivate the 
no-rent lands and who would, therefore, receive no benefit 
from a remission of rent ? 

Clearly, then, as against either the tenant or the agricultural 
laborer, the landlord has an easy case. He can without any 
difficulty prove that neither of the two has any claim whatever 
to any part of what he receives as rent. 

410. As between the Landlord and the Comniunity at 
Large. — But suppose the issue to be raised between the land- 
lord and the whole community, can the acquisition bj^ indi- 
viduals of the whole surjolus of the produce above the cost of 
cultivation on the poorest soils, be so successfully defended on 
grounds either of political equity or ^Dolitical expediency ? 

As this question appears to me likely to become, in a near 
future, a " burning " question, I think it but right to j^resent 
fully the argument of those who lu-ge that "the unearned 
increment of land " should go to the State and not to indi- 
viduals. This argument cannot be better presented than in 
the language of John Stuart Mill, who, in his later days, be- 
came President of the English Land Tenure Reform Associa- 
tion, Avhose professed object was to agitate this question. 

411. Mr. Mill's Argument.— " Suppose," says Mr. Mill, 
"that there is a kind of income which constantly tends to 
increase without any exertion or sacrifice on the part of the 
owner, these owners constituting a class in the community whom 
the natural course of things progressively enriches, consistently 
with comjilete passiA^eness on tlieir own part. In such a case 
there would be no violation of the principles on which private 
property is founded, if the State should appropriate this 
increase of wealth, or any part of it, as it arises. This Avould 
not properly be taking anything from anybody ; it would 
merely be applying an accession of wealth, created by circum- 
stances, to the benefit of society, instead of allowing it to be- 
come an unearned appendage to the riches of a particular class. 

"Now this is actually the case with rent. The ordinary 
l^rogress of a society which increases in wealth, is at all times 



THE UNEARNED INCREMENT OF LAND. 387 

tending to augment the income of landlords ; to give them 
both a greater amount and a greater proportion of the wealth 
of the community, independently of any trouble or outlay 
incurred by themselves. They grow richer, as it were, in their 
sleep, without working, risking or economizing." 

In the paper from which the foregoing paragraphs are 
extracted, Mr. Mill expressly excepted the present rental value, 
or the present capital value, of the land in possession of indi- 
viduals at the time the system of the public acquisition of the 
increment of the land should go into effect. Such an act should, 
in his view, have reference only to fixture increase. 

In another place, while professing a general resj)ect for the 
rights of property, Mr. Mill proceeds : 

" Some peojDle ask. But why single out the land ? Does not 
all property rise in value with the increase of prosjDerity ? I 
answer, No. All other property fluctuates in value, now up, 
now down. I defy any one to show any kind of property, 
not partaking of the soil, and sufficiently important to 
be worth considering, which tends steadily upward, without 
anything being done by the owners to give it increased value. 
So far from it, that the other of the two kinds of property 
that yield income, namely, capital, instead of increasing, 
actually diminishes in value as society advances. The poorer 
the country, or the further back we go in history, the higher 
we find the interest of money to be. Land alone — using land 
as a general term for the whole material of the earth — has the 
privilege of steadily rising in value from natural causes; and 
the reason is that land is strictly limited in quantity; the sup- 
ply does not increase to meet the constant increase of 
demand * * *^ 

" Well would it have been if this diversion of the jiublic 
wealth had been foreseen and guarded against long ago; let 
us at least prevent any more gigantic fortunes* from being 

*' ' If the Grosveuor, Povtmau aud Portlaud estates belonged lo the 
muoicipality of Loudon, the gigantic incomes of those estates looulci 
probably suffice for the whole expense of the local government of tlie 
capital. But these gigantic incomes are still swelling; 1)y the growth of 
London they may again be doubled in as short a time as they have 
doubled already." — Ibid. 



888 POLITICAL ECONOMY. 

built up in a similar manner. The Association claims for the 
State the right to impose special taxation upon the land equiva- 
lent to its special advantage." 

" Those countries are fortunate," remarks Mr. Mill, " or 
would be fortunate, if decently governed, in which, as in a 
great part of the East, the land has not been allowed to 
become the permanent property of individuals, and the State 
consequently is the sole landlord. So far as the public 
expenditure is covered by the proceeds of the land, those coun- 
tries are untaxed, for it is the same thing as being untaxed to 
pay to the State only what would have to be paid to private 
landlords if the land were appropriated. 

" The principle that the land belongs to the Sovereign, and 
that the expenses of government should be defrayed by it, is 
recognized in the theory of our own ancient institutions. The 
nearest thing to an absolute proprietor whom our laws know 
of, is the freeholder, who is a tenant of the Crown, bound 
originally to personal service, in the field or at the plough, 
and when that obligation was remitted, subject to a land tax 
intended to be equivalent to it." 

412. Land Tenure in India. — It will be observed that in the 
j)aragrapli immediately preceding^ Mr. Mill refers to countries in 
which the State remains the proprietor of all lands, and receives, 
or is in theory entitled to receive, as revenue, the fruits of the 
progressive enhancement in their rental power. Let us turn 
to British India for an illustration of the mode of deriving a 
revenue to the government from the increase in the value of 
land, due to the increasing density of settlement and the pro- 
gress of the arts, of manufactures, and of trade. 

When the British became masters of India we find them 
adopting two widely different methods of dealing with the 
right of the State to receive the rents which represented the 
varying fertility of soils under cultivation. The one was to 
fix the charge of the State upon each parcel of ground, per- 
manently; the other to make settlements for terms of years, 
reserving the power to readjust the rent charge at certain 
intervals, generally corresponding to the duration of a human 
life. 



THE UNEARNED INCREMENT OF LAND. 389 

The different results of the two methods of ascertaining and 
enforcing the rights of the Sovereign in respect to revenue 
from the land, appear in the valuable report made to the 
British government, 1870-1, entitled " The Moral and Material 
Progress of India." 

" Throughout the greater portion of the territory under the 
Lieut.-Gov. of Bengal," says the report, "the land revenue 
was permanently fixed in the last century by Lord Cornwallis, 
and the very large increase to the rents, which is mainly due 
to the increased prosperity and security of the country, has 
passed into the hands of private proprietors. These private 
rights have been divided and subdivided by a process of sub- 
infeudation, the original proprietor having long ago converged 
his interest into a permanent rent charge on the land; and the 
practice of subletting in integral or fractional parts has gone 
on until it will be found that, when the rent of an estate has 
increased, say from £200, the Government charge, to £1,000, 
instead of a single zemindar enjoying the £800 per annum, this 
sum is shared by four or five grades of landowners, each with 
a perpetual interest in the land, and each often consisting of 
many co-partners." 

On the other hand, in the Northwest Provinces, in Oudh 
and in Bombay, the jDrinciple of leases from the government 
for terms of years was adopted and has been maintained, with 
important consequences to the revenue. At the time of the 
report already cited, the leases of land had in general been 
recently renewed, and the report thus states the fiscal results. 

"The improvement in the districts where enquiry has 
been made is most marked ; in Indapur, one of the least favor- 
able spots, owing to the poorness of the soil, and the capri- 
cious nature of the rainfall, the population is found to have 
increased thirty-one per cent, in the last thirty years, bullocks 
and farming stock twenty, ploughs twenty-five, and carts about 
three hundred per cent. 

"The most important change of all, however, is in respect of 
the occupancy right of land, which had no saleable value what- 
ever, when the settlement was introduced ; but was, tOAvards 
the latter part of the lease, readily disposable at from fifteen 



390 POLITICAL ECONOMY. 

to seventeen years purchase of the assessment. The rise in 
the price of grain is an important element in the settlement of 
the question, at what rate the new assessment shall be fixed ; 
in Indapiir an addition of fifty per cent, on the old rates has 
been fixed; in Madeh the revised rates have added seventy- 
seven per cent, to the revenues of the district." 

413. The Feudal Burdens of Land in England.— -Let us 
now enquire how the rigbt of the State to receive the reve- 
nues of the land has been dealt with in England. 

The original feudal obligations of the tenant by military ser- 
vice may be taken as approximately the equivalent of an annual 
rent, which would be made, rudely iudeed, to increase with the 
increasing value of land due to the growth of population and 
the progress of trade and manufactures. The chief of these 
obligations are thus stated by Sir Edmund Creasy : 

The King, as feudal lord of his barons, and other military 
tenants, had a right to exact from them military service, or a 
pecuniary payment in lieu thereof, and it seems to have been 
optional with the King to claim the money, whether the vassal 
wished to serve in person or not, and even to exact both 
money and personal service. This war tax is called escuage 
or scutage, and the constant Avars and troubles of the times 
always furnished a ready pretext for demanding it. Other 
exactions of money payments, under the name of aids, were 
continually practiced. Besides these, the heir, on succeeding 
to his estate, was required to j^ay a sum of money to the lord, 
under the title of a " relief." If the heir was a minor, the 
lord took possession of the land, as guardian, and used or abused 
it as he pleased, till the heir obtained his majority. And 
even then the heir was obliged to pay a fine on suing out his 
livery, that is, on obtaining the delivery of the land from his 
guardian to him. The lord also had the right of nominating 
and tendering a Avife to his male Avard, or a husband to his 
female AA'ard. And if the Avard declined to marry the person 
so selected, the ward forfeited to the lord such a sum of money 
as the alliance Avas considered Avorth, The lord was entitled 
to a fine upon alienation : that is, if the tenant disposed of 
the land, or any part of it, to any third party. If the tenant 



THE UNEARNED INCREMENT OF LAND. 391 

died without heirs the land reverted to the lord. This was 
termed escheat, and as the right of devising real property did 
not exist in England after the Conquest, till Henry VIII's 
time, escheats must have been numerous. The lord also 
claimed to take back the land whenever the tenant committed 
any of a numerous list of crimes or acts of feudal misconduct. 
Such criminality or misconduct on the tenant's part was held 
to work a forfeiture. 

The King's military tenants in capite were also subject to 
the peculiar burden of primer seizin, which did not apply to 
those who held of inferior or mesne lords. Prhner seizin was 
a kind of extra relief, and under it the King, on the death of 
any of his military tenants in chief, took of the heir, if of full 
age, a whole year's rent of the lands. — [The English Con- 
stitution]. 

414. Composition for the Feudal Burdens Upon Land. — 
On the restoration of Charles II, the land-owning class secured 
their release from the strictly feudal burdens, the consideration 
received by the Crown being simply and solely an excise upon 
beer ; and thus the vast possibilities of revenue to be derived 
from the composition of the feudal obligations of the land- 
owning class were sacrificed. In the revolution of 1688, how- 
ever, there was, as Mr. Mill notes, a reaction against this sac- 
rifice of the rights of the public revenue. Indeed, the revolu- 
tion of 1688 was, in Mr. Mill's view, " a revolution made by 
the towns against the country gentlemen. One of the fruits 
of it was a tax on the land of four shillings in the jjound, 
which, at that time, may have been an equivalent for the bur- 
dens which had been taken off the landlords." 

In 1692, accordingly, the lands of England were valued for 
the j^urposes of the land tax. 

This land tax was to be a tax, not upon the community, not 
upon raw produce, not upon commercial agencies and manufac- 
turing operations, but solely a tax upon landlords, in reduction 
of their rents, a resum^^tion by the State, for its own benefit 
and for the corresponding relief of other classes, of a portion 
of the rents arising from the increase of population and the 
progress of trade and manufactures. 



392 POLITICAL ECONOMY. 

The following is Mr. Ricardo's statement of the incidence 
of a land tax: 

" A land tax, levied in proportion to the rent of laud, and 
varying with every variation of rents, is, in effect, a tax on 
rent, and, as such a tax will not apply to that laud which 
yields no rent, nor to the produce of that capital which is 
employed on the land with a view to profit merely and which 
never pays rent, it will not, in any v/ay, affect the price of 
raw produce, but will fall wholly on the landlords." 

But if the revolution of 1G88 was, indeed, as Mr. Mill con- 
ceives it, a revolt of the towns against the country gentlemen, 
and the land tax of 1G92 was intended to exact, on behalf of 
the crown and for the relief of the general community, an 
equivalent for the feudal obligations from which landlords 
had been relieved at the Restoratiou, the force of that move- 
ment was soon exhausted. The country gentlemen resumed 
their interrupted control of English legislation; the valuation 
o/'1692 has rer/tained to this day as the basis of the land tax, 
while the rate of that tax was in 1798 made permanent at 4 
shillings in the pound on the valuation of that date. It was by 
this series of acts that the right of the State to participate in the 
increase in the rental value of the lands of the kingdom was 
relinquished to the landlords, in consideration of an annual 
payment, forever, of about £2,000,000. 

415. Mr. Cobden's Denunciation.— It was to this relinquish- 
ment of the rights of the revenue by j^arliaments composed of 
country gentlemeu, for the benefit of landlords at the expense 
of the general community, that Richard Cobden alluded in his 
somewhat threatening sj^eech of December 17, 1845. 

" I warn Ministers and I warn land-owners and the aristoc- 
racy of this country against forcing upon the attention of the 
middle and industrious classes the subject of taxation. 

" If they make it understood by the people of this country 
how the landowners here 150 years ago deprived the sovereign 
of his feudal riglits over them ; liow the ai'istocracy retained 
their feudal rights over the minor copyholders; how they madi' 
a bargain with the King to give him four shillings in the pound 
upon their landed rentals, as a quit charge for having dis- 



THE UNEARNED INCREMENT OF LAND. 393 

pensed with these rights of feudal service from them; if the 
country understand, as well as I think I understand, how after- 
Avards this landed aristocracy passed a law to make the valua- 
tion of their rental final, the bargain originally being that they 
should pay four shillings in the pound of the yearly rateable 
value of their rental, as it was worth to let for, and then stop- 
ped the progress of the rent by a law makhig the valuation 
final; that the land has gone on increasing ten-fold in many 
parts of Scotland, and five-fold in many parts of England, wliile 
the land tay has remained the same as it was 150 years ago; 

* * * if they force these things to be understood, they 
will be making as rueful a bargain as they have already made 
by resisting the abolition of the Corn Law." 

416. Mr. Mill's Land Tenure Reform Agitation.— What 
Mr. Cobden thus threatened in 1845, Mr. Mill undertook about 
1870: an agitation of the whole question of taxation, and an 
active public enquiry into the right of the landlord class to 
receive the progressive increase of rents.* 

The following is an extract from the programme of the 
Land Tenure Reform Association, of which Mr. Mill was 
President : 

" (IV.) To claim for the benefit of the State, the Litercep- 
tion by Taxation of the Future Unearned Increase of the Rent 
of Land (so far as the same can be ascertained), or a great 
part of that increase, which is continually taking place without 
any ejffort or outlay by the proprietors, merely through the 
growth of j)opulation and wealth; reserving to owners the 
Ojjtion of relinquishing their property to the State, at the mar- 
ket value which it may have acquired at the time when this 
principle may be adopted by the Legislature." 

417. A Tax on Bents is not a Tax on Produce.— It Avill 
be observed that what Mr. Mill and his associates here recom- 
mend is a tax of 100 per cent, or less, upon rent, i. e., the 

* Duriiii^ tlie past few years a Avork, entitled " Progress nnd Poverty" 
has been published by Mr. lleury George, of California, in Avliich views 
on the Laud qucstiou even more audacious tium those of Mr. Mill are 
presented. The work is eloquent and picturesque, but I cannot believe 
that i^ has met with any sincere response in this country of small farms. 



394 POLITICAL ECONOMY. 

surplus profits of lands in excess of the cost of cultivatiug the 
poorest soils contributing to the supply of the market. 

The wide difference between this and a tax on all cultivated 
lands is thus explained by Mr. Ricardo: 

" If a land tax be imposed on all cultivated land, however 
moderate that tax may be, it will be a tax ou produce, and 
will therefore raise the price of produce. 

" Such a tax may be proportioned to the quality of the land 
and the abundance of the produce, and then it differs in no 
respect from tithes; or it may be a fixed tax per acre on all 
land cultivated, whatever its quality may be. A land tax of 
the latter description would be a very unequal tax. 

" An equal land tax, imposed indiscriminately and without 
any regard to the distinction of its quality, on all land cultivated 
will raise the price of corn in j^roi^ortion to the tax paid by 
the cultivator of the land of the worst quality. * * * 

Consequently, the consumer will be taxed not only to pay the 
exigencies of the State, but also to give to the cultivator of the 
better land a gratuity.-* during the period of his lease, and 
afterwards to raise the rent of the landlord to that amount. 
A tax of this description, then, Avould be contrary to the fourth 
maxim of Adam Smith; it would take out and keep out of the 
pockets of the people more than what it brought into the treas- 
ury of the State The Taille in France, before the revolution, 
was a tax of this description; those lands only were taxed 
which were held by an ignoble tenure; the price of raw j^ro- 
duce rose in proportion to the tax, and therefore they whose 
lands were not taxed were benefited by the increase of their 
rent." 

418. What Shall be Said of the Equity of this Proposal ?— 
In their apj)eal alike to history and Lo jjolitical equity, 1 can- 
not see that the Land-Tenure Reformers under Mr. Mill's 
leadership were wrong. That by the original Teutonic consti- 
tutions the land belonged to the tribe or the community, and 
not to individuals, and was generally cultivated and enjoyed 
in common or by rotation of tenure; (2), that even when per- 

* I Jiiivc substituted those two woids for tm exact sum uauied hy Mr. 
Ricardo in pursuance of the illustration he is offering. 



THE UNEARNED INCREMENT OF LAND. 395 

manence of individual possession was established and titles were 
created, the occupation of land was charged with duties to the 
State, both of fiscal contribution and of personal service, 
which were most onerous and laborious, and which tended to 
increase as the needs of the State increased and as the rental 
value of the land increased; (3), that, in Europe, generally, 
when the occupiers of land were released from these duties to 
the State, it was ujDon a consideration wholly inadequate or 
upon no consideration at all; while that release was conceded 
by the land-owning class, as the ruling class, to themselves 
as parties in interest, in a way which in this age would be 
regarded as monstrous and corrupt; and (4), that the unquali- 
fied ownership of land, thus established, enables the land-own- 
ing class to reap a wholly unearned benefit at the expense of 
the general community, deriving a continually larger and lar- 
ger sum in rents as per-capita production diminishes,* these 
propositions seem to me indisputable. 

419. What of its Expediency ?— As a measure of politi- 
cal expediency, hoAvever, the scheme of the assumption by the 
State of the unearned increment of land, appears to me 
fatally defective. 

In the first place, it must be observed that a large part, at 
best, of the possible mischief has already been done, beyond 
repair, in the surrender of the rights of the community to 
individuals. As that surrender is now generations, even 
centuries old, and as much of the land has changed owners, 
sometimes over and over again in the interval, many of the 
present possessors having paid the full price of to-day, in good 
faith, under existing arrangements which were fully sanc- 
tioned by law, it would be simple robbery for the State to 
reassert its interests in the land without fully indemnifying 
owners. This the English Land-Tenure Reform Association, 
in their programme already quoted, fully acknowledged. 
They proposed to " reserve to owners the option of relinquish- 
ing their property to the State at the market value which it 

* The driving of cultivation down to poorer or more distant soils im- 
plies a lowering of the per capita product; it implies, also, an enbaacc- 
ment of rents. 



396 POLITICAL ECONOMY. 

may have acquired at the time when this principle may be 

adopted by the Legislature." 

It is onl)^, then, to the future increase in the value of land 
that this scheme would apply. Such a limitation of its scope 
would not greatly reduce the importance of the benefit to be 
derived by the State in every community, but would deprive it 
of all its significance in many communities in many coun- 
tries, where land has doubtless already reached its maximum 
value. 

But, secondly, government could, by the confession of 
the Association, not realize through this scheme all that is 
left after the foregomg deduction has been made. Inasmuch 
as the State is bound to be very careful and solicitous not to 
do injustice, the appraisement of the present rental value, or 
capital value of estates, in the administration of such a scheme, 
must be very conservative. This, again, is frankly admitted 
by Mr. Mill in his explanatorj^ statement of the programme 
of the Association. "It is not necessary," he says, "to 
enforce the rights of the State to the utmost farthing. A 
large margin should be allowed for possible miscalculation."* 
Yet such an allowance would diminish, by just so much, the 
inducement to the State to assert its interest in the lands now 
held by individuals. 

420. How About Depreciating Property ? — Thirdly, it is 
clear, that the State, if it will claim the benefit of all increase 
in the value of lands resulting from the growth of demand, 
due to general causes affecting the increase of the community 
in numbers or productive power, is bound in equity, to make 
good all losses arising from the decrease in the value of lands 
wliich results from the decline of demand due to general causes 
acting in the opposite direction. If the so-called proprietor 
of land is not to be allowed to reap any gain not brought 
about by his own exertions, he must, in simjjle fairness, be 

*!N'o oneAvlio bas studied with any care, as Mr. Mill Jiad done, llie ques- 
tion of "Unexhausted Improvements" as an element in tenant right, 
could fall to appreciate the appalling difflcullies which would attend the 
appraisement of real estate for a purpose like that in view by the Land- 
Tenure Reform Association. 



THE UNEARNED INCREMENT OF LAND. 397 

protected against losses which no vigilance or effort of his 
could have averted. 

Now, the range of this consideration is not a narrow one. 
In almost every communitj^, even the most flourishing, the 
phenomenon of declining values is seen side by side with that 
of rising values. Notwithstanding the large increase during 
the past twenty years in the aggregate value of real estate in 
the city of Boston, for instance, there are extensive sections 
where houses will not bring anything near their price at 
the beginning of this period. Now if, in 1860, the prin- 
ciple of collecting for public uses all excess of rents above 
those prevailing at that date, or, at the option of the owner, 
paying the capital value of the property and assuming the 
ownership and administration thereof, had been adopted by 
competent authority in and for the city of Boston, the city 
would now be paying to thousands of property holders con- 
siderable annuities representing deficiencies in rental value 
which have occurred since 1860, or else it Avould, which is more 
probable, have come into possession* of street on street of 
houses and stores whose owners preferred to surrender their 
property at their capital value in 1860. 

And it is to be observed that, in administering this scheme 
of making good the loss of rental or capital value in the case 
of depreciating property, it would be incumbent on the state 
to adopt a rule of policy as to appraisements, the opposite of 
that to be adopted in ascertaining excess of rental value or 
growth of capital value, in property more fortunately situ- 
ated. "Whereas, in the latter case, less than the full amount 

* The inability of a popular government to realize an adequate revenue 
out of productive property, is too notorious to require remark. Look 
at the receipts of the State of Massachusetts from the Hoosac Tunnel, 
on which fifleeu millious have l)een spent! Were the city of Boston 
to take its choice of the productive property within its limits, to the 
extent of $50,000,000, at present rental rates, I do not believe it would, 
through a term of twenty years, derive a net income therefrom, repairs 
and expenses of administration being deducted, of two per cent, a year, 
against five or six per cent, obtained by present owners, and the chances 
are that, at the end of that period, it couldn't sell the property for $30,- 
000,000. 



398 POLITICAL ECONOMY. 

of " the unearned increment" should, as Mr. Mill admits, 
be exacted from the individual, in the former case the prin- 
ciple that " a large margin should be allowed for possible 
miscalculation," would operate to increase the amount which 
the community would be required to pay in indemnification 
of owners. And, thus, in still another way, the inducement 
to the state to assert its interests in the lands now held by in- 
dividuals, would be diminished. 

421. Fourthly : — Practical objections might be multiplied ; 
but it will be sufficient to refer to the official jobbery, trick- 
erj^, and corruption which would be involved in the manage- 
ment by the state of all the landed property of the country, 
either in an attempt to administer it productively, or in the 
occasional re-valuation and re-leasing of it in parcels to suit 
the occasions of individuals. To my view, the condition of 
things that would result would be simply intolerable. When 
we contemplate the history of even petty transactions of a 
like character, on the part of our national government or of 
the sevei'al state governments, it seems impossible to conceive 
that any inducement should ever draw the American people, 
traditionally jealous of the enlargement of governmental 
powers, on to the adoption of such a measure. 



VIII. 

POLITICAL MONEY. 

422. Inconvertible Paper Money is, by Distinction, Po- 
litical Money. — In all modern societies, money is at once an 
economical agent and a political institution. The selection by 
the State of a money metal,* the adoption of denominations and 
devices for its coinage, the establishment of a standard of purity 
in the coin, and the conferring of the legal-tender properly 
upon the money pieces so formed, are acts of legislation or 

* Prof. Thorold Rociers, in his History of Agriculture and Prices, 
has shown tlie marked influence exerted upon the vahie of gold by the 
action of the governments of Northern Italy, in instituting the coinage 
of that metal, iu the latter part of the Thirteenth Century. 



POLITICAL MONEY. 399 

administration which give to all forms of money with which 
we are familiar something of a political character. 

But there is one kind of money which owes its existence 
and acceptance as the common medium of exchange so com- 
pletely to legislation or to the act of the ruler, that it may be 
called, by eminence, political money. This is the inconvert- 
ible pajDer money of which we wrote in Chapter 4, Part III. 
In comparison herewith, all other forms of money known to 
modern commerce may be regarded as having so little of a 
political character as to justify their being called economic 
money.* 

The essential difference between what we here call econo- 
mic and what we call political money, is that the supply of 
the former, under free coinage, is limited by natural condi- 
tions of production, while the supply of the latter is released 
fi'om all such conditions, aiid is made to depend upon law or 
the will of the ruler. It requires more labor, in general twice 
as much labor, to raise two thousand ounces of gold or sil- 
ver from the mine as to raise one thousand ounces, to be 
coined into money ; but it costs no more labor to print two mil- 
lion dollars of paper money, or ten millions, or fifty, than to 
print one million. To multiply the amount of such money, it 
is only necessary to print the word fifty, or ten, or two, in- 
stead of the word one. 

By some, this caj)ability of increase at will, independently of 
the expenditure of labor and capital, has been regarded as a 
prime advantage, and such money has been denominated by 
these advocates of government issues, political money, — that 
character being attributed to it as meritorious. It is, then, 
from the friends of such money that I borrow the term. 
Accej^ting the challenge contained in this title, let us jDroceed 

* An exception, perhaps, requires to be made of countries where re- 
stricted coinage of moucy of full legal-tender power, exists, as in the 
States of the Latin Union, where silver money is legal-tender 
indifferently with gold, bnt where only so much silver is, by interna- 
tional agreement, allowed to be coined yearly, the amount of gold that 
may be coined being imlimited. See par. 177. This condition of things, 
though it exists somewhat widely at present, is anomalous and doubtless 
transient. 



400 POLITICAL ECONOMY. 

to enquire further regarding government paper money, apply- 
ing to it the test to which all jjolitical institutions and arrange- 
ments are rightly subjected. 

423. The Favorable Possibilities of Political Money. — 
I have already, with a frankness tliat has, on other occasions, 
been severely blamed by those who call themselves the advo- 
cates of "hard money," or "honest money," admitted that 
government pape.- money may, for a time at least, irrespec- 
tive of redemj^tion, pass in circulation without depreciation ; 
performing perfectly the functiori of a medium of exchange, 
registering the comparative values of the several commodities 
in the market with all the facility and accuracy that could be 
desired, and serving as a standard of deferred payments well 
or ill according as its own amount is regulated. Prof. Jevons 
states that between 1789 and 1809 the value of gold fell 46 
per cent. ; that from 1809 to 1849 it rose 145 per cent., while 
between 1849 and 1874 it fell at least 20 per cent. It is cer- 
tainly conceivable that paj^er money might be so regulated in 
amount as to fluctuate less in value than did gold during the 
eighty-five years covered by Prof. Jevons' computation. 

424. The Liability to Evil Inhering in. Political Money. 
— In the case of every proposed political institution or arrange- 
ment, however, we are bound to investigate, not its possibili- 
ties only, but also its probabilities. It is not enough to show 
that it might conceivably be so established and maintained as 
to yield results of good. It must also aj^j^ear '^ that its suc- 
cessful working does not depend upon an exercise of prudence, 
virtue and self control, which arc beyond what is reasonably 
and fairly to be expected of men in masses, and of rulers and 
legislators as we find them; and the consequences of its pos- 
sible perversion or abuse must be weighed against the advan- 
tages which might be derived from its legitimate application 
and employment. 

Paper money, then, as a political institution or arrangement, 
must submit to this test. The man who advocates govern- 
ment issues, without being prepared to show reasonable 

* I lieie abridge tlie aigiinicnts iiiul jlhi&tratlous used in the discussion 
of this subject iu the Otli Cliupter of " Mouey, Trade aud Industry." 



POLITICAL MONEY. 401 

ground for believing that they will not be so abused as to 
accomplish more of evil than of benefit, is not entitled to be 
listened to. After the experiences of the j)ast hundred years 
intelligent men rightly refuse to take the trouble even to dis- 
cuss political schemes which assume an impossible virtue, or 
which disregard the actual conditions under which alone they 
could be set to work. 

In the case of government paper money the liability to 
abuse is found in the tendency to over-issue; to this end the 
fiscal exigencies of government are likely to combine with a 
popular craving for a money of diminishing value. 

We have already (par. 202) shown that the smallest degree 
of depreciation, even, as Mr. Bagehot says, the mere liability 
to depreciation without its reality, may unsettle the exchanges 
between the paper money country and those with which it 
trades, in a degree to work very injurious effects. But what 
we have here to consider is the liability to extensive over- 
issues, with an altogether new series of consequences to trade 
and industry. 

425. Tvi^o Motives Operating to Produce Expansion. — 
This liability arises from the fact that, where the principle of 
inconvertible paper has once been adopted, tAvo powerful 
motives tend to produce expansion, with no adequate restrain- 
ing force in operation. When once the traditional fear of 
paper money is worn off, the only safeguard against over-issue 
is found in far-reaching, conscientious, disinterested and cour- 
ageous statesmanship. All the selfish interests that make 
themselves felt, all the passions of the hour and the aj^petites 
that clamor for indulgence, favor expansion. There is a steady 
pressure on that side, which now and then rises to furious 
impulses against the frail barrier that withstands inflation. 

How far is it wise for any moderate advantage to call into 
being forces which are only to be kept from becoming in the 
highest degree destructive by being constantly watched and 
unremittingly opposed ? Is it good policy — is it consistent 
with ordinary common sense — to invoke, for the accomplish- 
ment of a definite and at the best not considerable good, 
agencies respecting which it is confessed that the least relaxa- 
26 



402 POLITICAL ECONOMY. 

tion of vigilance, a momentary indulgence of human weakness, 
one false motion, will lead to serious, perhaps irreparable dis- 
aster ? 

426. Time no Safeguard. — Nor does the liability to over- 
issue diminish with the lapse of time. Moderation in the 
issue of government paper money does not form a political 
habit which becomes a security against abuse. On the con- 
trary, the longer the regime of inconvertible paper money 
lasts, the greater the danger. The popular mind becomes 
accustomed to the sight and the thought of it ; the fear of it is 
worn off; a generation comes upon the stage that has not known 
metallic money, or bank money convertible into coin on demand. 

In 1690, the Colony of Massachusetts issued paper money 
to pay the charges of the disastrous expedition of Sir Wm. 
Phipps. At first, over-issue took place and depreciation set in ; 
but by prompt action the excess was called in and redeemed, 
and the notes brought to par. They so remained for nearly 
twenty years. When, however, in 1710, the second expedi- 
tion against Canada took place, the Colony fell, without an 
apparent struggle, into the gulf of irredeemable paper; the 
money of Massachusetts became a Aveltering chaos ; trade Avas 
brought into the utmost confusion; production to the utmost 
Aveakness. From this miserable condition the Colony did not 
emerge for nearly forty years, till, in 1749, the paper was 
bought up at 11 : 1 in silver and burned. 

Russia first issued paper money in 1768, and for nearly 
tAventy years kept her notes at par, only to fall at the end of 
that period into an abyss of discredit and depreciation from 
which her trade and hrr finances have not yet recovered. 

TAvice since the Revolution of 1848 Austria has stood on 
the very verge of sj)ecie payments, only to be throAvn back- 
ward into insolvency by the imminence of Avar. 

The danger of over-issue never ceases to threaten inconver- 
tible paper money. The path winds ever along the edge of a 
precij^ice. Vigilance cannot for a moment be relaxed. The 
prudence and self-restraint of years count for nothing against 
any new onset of popular passion or in the face of a sudden 
exigency of government. 



POLITICAL MONE V. 408 

427. The Fiscal Motive.— The exigencies of the public 
treasui-y constitute, perhaps, the most formidable of the two 
dangers which menace the integrity of a paper money circula- 
tion. 

"Real money," said Edmund Burke, "can hardly ever mul- 
tiply too much in any country, because it will always, as it 
increases, be a certain sign of the increase of trade, of which 
it is the measure, and consequently of the soundness and vigor 
of the whole body. But this paper money may and does 
increase, without any increase of trade, nai/, often when trade 
greatly declines^ for it is not the measure of the trade of the 
nation, but of the necessity of the government ; and it is 
absurd and must be ruinous, that the same cause which natu- 
rally exhausts the wealth of a nation should likewise be the 
only productive cause of money."* 

The two most marked instances of continence in the issue 
of irredeemable paper are those afforded by the Bank of Eng- 
land during the period of the Restriction, and by the Bank 
of France in 1848, and again in 1871. No one can question 
that the prudence and self-restraint here shown were due mainly 
to the fact that, in neither case, would the profit of fresh 
issues have inured to the benefit of the government. At the 
same time, it would not be candid to omit to mention the loyal 
observance by the Congress of the United States of the 
pledge it gave the country in 1864, that the greenbacks should 
not exceed $400,000,000. 

428. Scaling Down Debts.— In all free governments, or 
governments much subject to popular impulses,a second danger 
of over-issue arises from the appetite which is engendei'ed in 
the masses of the people for further emissions for the purpose 
of scaling down debts, "making trade good," and enabling 
works of construction and extensive public imj^rovements to 

* la the same vein, Alexander Hamilton: " In great and trying- 
emergencies there is almost a moral certainty of ils becoming mischiev- 
ous. The stamping of paper is an operation so much easier than the 
levying of taxes, that a government in the practice of paper emissions 
would rarely fail to indulge itself too far in the employment of this 
resource." 



404 POLITICAL ECONOMY. 

be undertaken, for which taxation could not easily provide the 
means. 

The intrusion of the debtor class into the legislature with 
their impudent demands for issues to scale down debts is a 
familiar spectacle. Even the sterling virtue of early New 
England did not save those primitive communities from the 
fiercest impulses of political dishonesty, when once the paper 
money passion had been aroused. " Parties," says the his- 
torian Douglass, " were no longer Whigs and Tories, but 
creditors and debtors. Governors were elected and turned 
out as the different interests happened to i^revail."* 

The same feature apj)eared early in the history of the 
French Revolutionary paper money. We have seen it in our 
own country during the past twenty years, an active, aggres- 
sive, vehement, virulent force, engendered by the desire of 
paying debts, wiping off scores, raising mortgages, in depreci- 
ated money. 

Paying debts is always a disagreeable necessity. For one 
man who would steal to acquire property, in the first instance, 
a score will do that which is no better than stealing, in order 
to retain property which has passed into their hands and 
which they have come to look upon as theirs, though not j^aid 
for. 

It is the view of not a few sound economistsf that a grad- 

* "All who had received loaus," says Prof. Sumaer, writing of the 
same period, " joined as a compact body in favor of further issues. All 
new issues to others depreciated the currency and enabled them to pay 
back more easily." 

f Thus M. Chevalier says: "Such a change will benefit those wlio 
live by current labor; it will injure those who live upon the fruits of 
past labor, whether their fathers' or their own. In this it will work in 
the same direction with most of the developments which arc brought 
about b}'' that great law of civilization lo which we give the noble name 
of progress." 

And Mr. .1. R. McCulloch declares that "though, like a fall of raia after 
a long course of dry weather, it may be prejudicial to certain classes, it 
is beneficial to an incomparably greater number, including all who are 
actively engaged in industrial pursuits, and is, speaking generally, of 
great public or national advantage," 



POLITICAL MONEY. 405 

ually progressive depreciation of metallic money, from age to 
age, might be advantageous to society as a whole, both 
relieving industry in some measure from the weight of bur- 
dens derived from the past, and giving a certain fillip to indus- 
trial enterprise. 

But here the injury to the creditor class is not the work of 
man, but of God; purely ictus del, like the death of a miserly 
bad man which brings his wealth into the hands of a generous, 
philanthropic, public-spirited heir, at which change of owner- 
ship men may properly rejoice. But had the heir procured the 
death of the miser, the aspect of the case would have been 
entirely different. No plea of public spirit or benevolence in 
the disposition of the wealth could compensate society in the 
smallest degree for the deep and damning wrong through 
which that wealth changed owners. 

A reduction in the burden of obligations, accomplished by 
the act of a legislature, in the issue of paper for the purpose 
of enabling the debtor to pay in a depreciated money, has no 
virtue in it to promote industry or encourage enterprise. It 
carries with it the sting of injustice and fraud. It draws 
after it retributive agencies which curse the people and the 
ao-e Havino- reference exclusively to the economical inter- 
ests of society, we may confidently say that the man who 
advocates the scaling doAvn of debts by act of government, 
for the sake of encouraging trade and production, shows him- 



Aud the philosopher Hume, writing of the effects of aa increase of 
metal money, through the discovery of new mines, says: " We shall find 
that it must first quicken the diligence of every individual before it 
increases the price of labor. 

"Though the high price of commodities be a necessary consequence 
of the increase of gold and silver, yet it follows not immediately upon 
that increase; but sometime is required before the money circidates 
tlu-ough the whole State, and makes its effect to be felt on all ranks of 
people. At first, no alteration is perceived; by degrees, tlie price rises, 
first of one commodity and then another, till the wliole at last reaches a 
just proportion with the new quantity of specie which is in the kingdom. 
In my opinion it is only in this interval, or intermediate situation 
between the acquisition of money and rise of prices, that the increasing 
quantity of gold and silver is favorable to industry." 



406 POLITICAL ECONOMY. 

self so ignorant of history as to be a wholly unfit adviser in 
respect to the present and the future. 



IX. 



BI-METALLISM. 

429. The question of Bi-metallism is to be decided solely 
upon the principles which have been laid down in Part III, 
as governing the value of money; but the question is one of so 
much popular interest and has been so confused by the passion- 
ate controversy waged over it, that it may be worth while to set 
the points at issue fairly forth, for the assistance of the begin- 
ner in economics. 

And first let us depict the situation, in view of which the 
controversy has arisen. 

430. The Gold-Using Countries. — We find one group of 
States, of great importance in international commerce, whose 
habits of trade make gold money, or bank notes predicated 
upon a reserve of gold money, the most agreeable and con- 
venient medium of exchange. These are rich countries, hav- 
ing vast accumulations of wealth derived from the industry of 
the past. In them, because their productive power is large, 
wages are high; in them, trade and industry are organized 
with a great degree of complexity and minuteness. It is not 
needful for our j^resent purpose to name all the countries of 
this group; but clearly it embraces England, Frauce, Belgium 
and Holland, in Europe, and the United States, on this conti- 
nent. 

It is admitted, on all hands, that in these countries the use 
of silver as the ordinary money of trade would be attended 
with very great practical inconvenience, and would meet so 
much prejudice on the part of the people as to render it mani- 
festly inexpedient for any government to propose the intro- 
duction of that metal as the sole money of full legal tender 
power, with or without bank notes substituted for it, in greater 
or less degree, in the circulation. These countries, however, 
use a large amount of silver as fractionary money, for the 



BI-ME TA LLISM. 407 

purpose of making change in transactions, and for retail pur- 
chases. 

431. The Silver-Using Countries.— On the other hand, we 
find a group of countries — embracing an aggregate number of in- 
habitants many times greater than those previously mentioned, 
in which the facts of industry and the habits of the people re- 
specting exchange are such as to make gold an impossible 
money. Such countries, beyond a doubt, are China and In- 
dia, where the ordinary wages of labor range from two to 
eight cents a day. There are other countries — some in Eu- 
rope and some in America — settled by the people of South- 
ern Europe, in which wages range from twelve to thirty 
cents a day, in some of which the ordinary use of gold as 
money cannot be pronounced impossible ; yet where rea- 
sons, both of practical convenience and of sentiment and 
habit, give a decided preference to silver for that purpose, 
a preference so decided that it is not reasonable to anticipate 
that these countries will soon, if ever, pass over from the silver- 
using to the gold-using grouj) of countries. The group of coun- 
tries in which we have spoken of the use of silver money as more 
consonant with the facts of industry and the habits of the 
people than the use of gold, comprise the Spanish Ameri- 
can States, Russia, and most, if not all, of the Southern States 
of Europe. 

I have said that it is not necessary for our present purpose 
that all commercial countries should be named on the one side 
or the other of the dividing line drawn, as belonging naturally 
among the gold-using states or among the silver-using states. 
Controversy might easily arise as to the proper location of Italy 
or Germany,* perhaps also of Austria; but we have no call to 
undertake the question. It is enough if it appear not only 
tliat there is one great group of states Avhich, in fact, use gold 
as their principal money, and another great group which use 

* If, for example, Germany were resolved into its constituent States, 
several would naturally gravitate towards the gold-using group ; more, 
still, towards the silver-using group. In like manner, Northern Italy 
might go to the gold-using group, while Southern Italy would lend 
the other way. 



408 POLITICAL ECONOMY. 

silver, but that the preference of the one metal or the other 
is so far determined by economic causes, such as the rate of 
wages, the degree of accumulated wealth, etc., as to make it 
highly probable that the two money metals will continue to be 
used, as now, each within a wide field that is peculiar to 
itself ; that is, that England, France, Belgium, and Holland 
will not in any near future, have silver as the ordinary and 
principal money of the country ; that, on the other hand, 
India and China will not have gold money. 

432. What the Bi-Metallist Proposes.— It is this situation 
which the bi-metallist has in view when he propounds his 
scheme. Accepting the existence of a large group of coun- 
tries in which gold naturally cii'culates as money and another 
in Avhich silver is so used, he proposes to create a league of 
states, some of which are what we may, for brevity, call sil- 
ver states, and some, gold states, which shall, each for itself, 
but by simultaneous action, establish the free coinage* of the 
two metals, and make the money of one metal to be legal- 
tender indifferently with money of the other metal, in pay- 
ment of debts, at a certain ratio determined upon in advance 
by the consenting states. The bi-metallist asserts that, if such 
league be formed on a permanent basis between a consider- 
able number of important commercial countries, even though 
it does not embrace all countries, the relative value of gold 
and silver will be kept close to the mint-ratio so estab- 
lished. 

When asked what is the object in view in such an interna- 
tional arrangement ; what advantage is expected to be derived 
of sufficient importance to make it worth while to endeavor 
to overcome the natural reluctance of nations to bind them- 
selves to act in common respecting matters which touch their 
separate sovereignty, to make it worth while to resort to the 
machinery of international conferences and congresses, the 
bi-metallist adduces two considerations which he alleges to be 
of vast importance to the world's trade and industry. 

* The distinctiou between free aud gratuitous coinage is noted in 
par. 177. 



BI-METALLISM. 409 

433. A Par of Exchange Desired between Gold Coun- 
tries and Silver Countries. — The first is the establishment of 
a par of exchange between silver-using and gold-using coun- 
tries. 

We saw (par. 372) that between two countries having the 
same money metal, a par of exchange exists. This jDar of ex- 
change is realized whenever the sum of the payments to be 
made in one country by merchants of the other country, 
within a certain brief period, is equal to the sura of the pay- 
ments to be made in the latter by the merchants of the for- 
mer country, in Avhich event a merchant j^aying down a cer- 
tain amount, say 1,000 ounces, of the common money metal, 
say gold, in his own country, can thereby purchase the right to 
receive, himself, or through his agent or representative — his 
creditor, let us suppose — 1,000 ounces of that metal in the coun- 
try in question. Exchange will, in fact, fluctuate about this par 
of exchange, now above and now below, according to the move- 
ments of supply and demand, as these are determined by the 
relative amounts of debts to be paid and of jjayments to be 
received, respectively, in the course of trade between the two 
countries. The outside line of these movements of exchange 
is, as we saw, the cost of shipping specie. 

But between two countries having money of different 
metals, say of gold in one country and of silver in the other, 
there is no par of exchange, irrespective of a bi-metallic league 
like that under consideration. Wholly in addition to the usual 
movements of exchange, the question how much of gold an 
Indian merchant can obtain the right to receive in London, 
by paying down a certain amount of silver in Calcutta, 
depends on the silver price of gold, the gold price of silver, at 
the time. And as the two metals have their separate sources 
of supply,* and, to a certain extent, independent uses, whether 

"* " The metals have in a great degree their separate sources and condi- 
tions of supply. Silver is generally drawn from deep mines. A very 
large part of all the gold produced in the history of the world has been 
drawn from 'placers' — surface deposits, where the metal lies in fine 
grains, mingled with the sand in the beds of old rivers, or has been derived 
by the process of hydraulic mining, where the force of water is directed 
by engineering skill to accomplish the same work in a few hours which 



410 POLITICAL ECONOMY. 

in the arts or as money, their respective vakies are likely to 
fluctuate greatly. 

434. It is a necessarj'^ result of this that much more uncer- 
tainty is involved in trade between a gold and a silver country 
than between two gold countries, or two silver countries: the 
chances of undeserved losses or unearned gains are greatly 
increased. No merchant in a silver country selling to a gold 
country, no merchant in a gold country selling to a silver 
country, can know for how much of the metal which forms 
the money of the country to which he exports his wares he must 
sell them, in order to make himself good for the metal which 
he has expended at home in producing or purchasing them. 

The English merchant who sells to Calcutta or Hong Kong 
or Mexico, may do all that lies in him with the highest wisdom 
and skill; he may buy the right sort of goods and buy them at 
a bargain, ship them at the proper season to the best market, 
sell them at the highest ruling prices, and bring the i^roceeds 
safely home to Liverpool, yet a fall in silver, between the sale 
of the goods and the receij^t of the proceeds, may strip 
him of all the profits of his venture, of all the fruits of the 
year's business, or even entail a heavy loss upon him in impair- 
ment of his capital. It is true that, in one sense, what one 
merchant in an individual case loses some other merchant, 
or some banker, or some speculator, may gain. But it is not 
true that unearned gains encourage industry to the extent to 
which undeserved losses discourage it. 

435. Now this grievous disadvantage under which interna- 
tional trade suffers, the bi-metallist professes to be able to 
remove, through the scheme that has been described. It is not 
now the question whether this can, indeed, be done; but 
whether the result be desirable, and, if so, whether desirable 

in llie case of the ' placer' or 'gulch gold ' has been done by centuries of 
frost and flood. Hence, the production of silver is geneially pursued 
tliroutrli systematic mining operations. The production of gold is more 
largely inflncnced by accidental discoveries. Moreover, owing to its low 
affinity for other metals, gold is largely fonnd native, while silver, from 
the high affinity it exhibits, is generally found in ores, so that the prob- 
lem of its production involves both mechanical and chemical elements." 
— Money, Trade and Industry. 



BI-METALLISM. 411 

in a degree to justify a considerable effort, perhaps some 
sacrifice. 

It is one of the accidents of the controversy over this ques- 
tion that the mono-metallist writers are estopped from deny- 
ing that this result would, if practicable, be desirable in a very 
high degree. There are but few of those writers who have 
not, in discussion of the effects of inconvertible j^aper money, 
treated the loss of a par of exchange with foreign nations as 
a serious disaster. In dealing with such a case, for example, 
as that of France between 1871 and 1877, they have attributed 
most unfortunate consequences to the inconvertibility of the 
money of the RejDublic into that which was the money of the 
commercial world, even though the notes of the Bank of 
France were at a very slight, often hardly appreciable, dis- 
count. In the same way these writers, during the continuance 
of the American suspension, 1862 to 1879, were accustomed 
(and rightly) to attribute to the inconvertibility of the green- 
backs most injurious effects upon the trade and produc- 
tion of the United States, and this, even after the premium 
on gold had sunk to a low average, and had ceased to fluctuate 
violently or rapidly. "Any degree of depreciation, however 
small, even the liability to depreciation, without its reality," 
to use Mr. Bagehot's jshrase, was declared to be a cause of 
mischief, to be eradicated by the most heroic efforts -of the 
suffering nation, at almost any sacrifice. 

436. The Greater Stability of Value in Bi-metallic Money. 

— A second benefit which, according to the bi-metallist claim, 
would result from the establishment of an international league 
for the free coinage of both metals, as indifferent legal tender 
at a certain fixed ratio in payment of debts, is that the two 
metals, thus bound together, would constitute a better money 
than either metal by itself could be. The inequalities of min- 
ing production would tend in a degree to equalize each other, 
with the result of a greater uniformity in the production of 
the compound mass, and hence of a greater steadiness in the 
value of money. 

Here, again, the raono-metallists'are at a controversial disad- 
vantage. In order to establish the impracticability of the 



412 POLITICAL ECONOMY. 

bi-metallic scheme, they have dwelt strongly on the tendency 
of the two metals to vary widely in value, and this view is 
fully borne out by the facts of the last three or four cen- 
turies.* But this argument against the practicability of the 
bi-metallic scheme virtually amounts to an admission of the 
merits of that scheme, if found practicable. 

I think it must be conceded, on this statement, that the 
bi-metallic scheme, if it could be carried out so as to realize the 
expectations of its advocates, would confer very great benefits 
upon international trade, and, by consequence, upon the pro- 
duction of wealth. 

437. Is it Practicable ?— Let us, then, enqu.ire what are the 
economical conditions of the case: how far it is reasonable to 
believe that this scheme could be successfully established. 

What is the force to which the bi-metallist looks to restrain 
the tendency to divergence between the values of the two money 
metals, silver and gold ? It is evident that any rational scheme 
to influence value must aim at affecting either supply or demand. 
Can, then, government influence the supply of or the demand 
for a money metal ? Clearly, unmistakably, yes. Govern- 
ment can in a very great degree influence the demand for 

*Takc the present century, only, for illustration. When the century 
opened, silver was in course of rapid production. Three dollars' worth 
of silver wss taken out, whore one dollar's worth of gold was produced. 
Then came the series of South American and ISIexican revolts and revo- 
lutions, between 1809 and 1829, by which mining machinery was des- 
troj'ed, mining populations scattered, and the most prolific mines of the 
world closed. So great w^as the elfect of this cause that Mr. Jacob 
estimates that the stock of the precious metals in civilized hands fell off 
one-sixth in those twenty y(!ars. But gold now came in to fill the void. 
In 1823, the mines of the Otual began to yield largely, while about 1830 
the gold sands of Siberia became known. And now only 68 cents' worth 
of silver was produced to a dollar's worth of gold. 

In 1848 and 1851 came the gold discoveries of California and Australia, 
and so altered was the relative production of the two metals that only 27 
cents' worth of silver was taken out, to a dollar's worth of gold ! After 
18G1, however, the facts of production began to be more favorable to 
silver. By 1873 came a still further movement, in the same direction : the 
annual yield of silver went up to $70,000,000, while the yield of gold fell 
below 1100,000,000, and even went down, later, to $90,000,000. 



BI-ME TA LLISM. 413 

either of the money metals by coining it into money and con- 
ferring on the coin legal tender power. 

To illustrate this, let us suppose that, in any country, both 
gold and silver are made legal tender in payment of debts, at 
the ratio of 15^ of silver to 1 of gold:* that is, the law decrees 
that a debtor may extinguish an obligation by the payment of 
a certain number of ounces of gold, oi', at his ojstion, of fifteen 
and a half times the number of ounces of silver. Let it be 
assumed that, at the moment of the decree, this was the actual 
market ratio between the metals. 

Let it now be supposed that causes, natural or commercial, 
that is, affecting the supj^ly of one metal or the other, or affect- 
ing the demand for the one or the other, begin to operate 
to produce a divergence from this ratio : say, to make an ounce 
of gold worth more than fifteen and a half ounces of silver, 
what will occur ? The bi-metallic principle will at once begin 
to act in restraint of this movement toward divergence. How 
will it operate ? Through the desire of every debtor to meet 
his maturing obligations in the cheapening metal. All debtors 
will, in the case supposed, seek silver. This extension of 
demand acts directly in contravention of the force which is 
lowering its value. On the other hand, the metal — gold — 
which is tending to become dearer, from that fact alone falls 
out of demand. No debtor seeks it as the means of paying his 
debts. This diminution of demand at once ojDerates in coun- 
teraction of the forces tending to raise the value of gold. 

438. The Opinion of Mono-Metallic Writers. — Now, is 
this a purely fanciful view of the subject, taken only by the 
advocates of the bi-metallic scheme ? On the contrary, it has 
been seen in operation over extensive countries, of great com- 
mercial importance, through long periods of time; and the 
validity of the cause is fully confessed by mono-metallic 
writers of the highest reputation. 

M, Chevalier, the eminent French economist, writing of 
this system as it prevailed in his own country in 1857, when, 
in consequence of the great gold discoveries in California and 

* The ratio establislied iu the Stales of the Latiu Uuiou, viz., Frauce, 
Italy, Belgium and Switzerland. 



414 POLITICAL ECONOMY. 

Australia, gold ^vas tending to fall and silver to rise, and tlius to 
pull away from the mint ratio of 15^ : 1, then established in 
France, speaks thus emphatically : " Whilst this state of 
things lasts, it will be impossible at London, Brussels, Ham- 
burg, or even at New York,* or at any other great centre of 
commerce, for gold to fall much below IS-g- times its weight in 
silver." And Prof. Cairnes, writing of the same period, said : 
" The crop of gold has been unusually large; the increase in 
the suj)ply has caused a fall in its value ; the fall in its value 
has led to its being substituted for silver ; a mass of silver has 
thus been disengaged from purposes which it was formerly 
employed to serve; and the isesult has been that the tioo metals 
have fallen in value together P 

Mr. Bagehot : " Whenever the values of the two metals al- 
tered, these countries acted as equalizing machines; they took 
the metal which fell,they sold the metal which rose; and thus 
the relative value of the two was kept at its old point." 

And the late Prof. Jevons, writing in 1874, under the title, 
the Equivalence of Commodities (see par. 125), says : " It is 
ujDon this principle that we must explain the extraordinary per- 
manence of the ratio of exchange of gold and silver: that 
this fixedness of ratio does not depend upon the amount and cost 
of production is proved by the very slight effect of the 
Australian or Californian discoveries." 

And elsewhere Prof. Jevons thus strikingly illustrates the 
compensatory action of the two metals. " Imagine two reser- 
voirs of water, each subject to independent variations of supply 
and demand. In the absence of any connecting j^ipe, the level 
of the water in each reservoir will be subject to its own fluctu- 
ations only. But, if we open a connection, the water in both 
will assume a-certain mean level, and the effects of any exces- 
sive supply or demand will be distributed over the whole 
area of both i-eservoirs. 

" The mass of the metals, gold and silver, circulating in West- 
ern Europe in late years, is exactly represented by the water in 

* Wli3% "even at New York ?" Because that city was nearest the great 
gokl-produciug fields of America, and hence would be first and most 
powerfully affected by the floods of new gold. 



BI-ME TA LLISM. 415 

these reservoirs, and the connectiug pipe is the law of the 7th 
Germinal, an XI,* which enables one metal to take the place 
of the other as an unlimited legal tender." 

439. Bi-Metallism not a Chimera.— We see, thus, that 
the bi-metallic scheme is not based upon any fanciful notion, 
but upon economical principles which are incontestable. If 
it be worth while for any nation to undertake this work of 
holding silver and gold together, it can do so just as long as it 
has any considerable quantity of the metal which at the time 
tends to become deai*er, to dispose of ; if it be worth while 
for any group of nations to undertake this, they can maintain 
the approximate equivalency of the two metals just as long 
as their joint stock of the metal which at the time tends to 
become dearer remains unexhausted. Every additional state 
that joins the bi-metallic group strengthens the system in two 
ways, -first, by contributing to the stock of the metal which 
may, under the natural or commercial conditions prevailing at 
the time, tend to become dearer, and, secondly, by withdrawing 
itself from the list of States which may contribute to the 
demand for that metal. 

440. The Operation Illustrated.— We may suppose the 
commercial world to be divided into sixteen states, A to P, 
the first six having the single gold standard ; four, G to J, 
the so-called double standard of gold and silver, under the 
bi-metallic system : say at 15 1 : 1 ; the remaining states hav- 
ing the single standard of silver, thus : 
A, B, C, D, E, F, (G, H, I, J,) K, L, M, N, O, P. 
It is evident that, in the event of a change in the condi- 
tions of supply tending to cheapen silver relatively to gold, 
the new silver would pass into the countries of the double 
standard, G to J, and be there exchanged for gold, at the rate 
of 15| : 1, with some small premium as the profit of the 
transaction, and, as a result, the gold displaced from the circu- 
lation would be exported to the gold countries, A to F, in set- 
tlement of trade balances. 

The rapidity with which this substitution of silver for gold 

* 1803, French revolutionary style, the date commonly assigned to the 
establishment of the bi-metallic system in France. 



416 POLITICAL ECONOMY. 

in the bi-metallic states will proceed must depend, first, on the 
force of the natural causes operating to cheapen silver ; and, 
secondly, on the force of the commercial causes operating to 
maintain or advance the value of gold. The length of time 
during which the drain of the dearer metal can be sustained 
without exhaustion, will (given the rate of movement) depend 
solely upon the stock of that metal existing in the bi-metallic 
states when the drain begins. 

But chief among the commercial causes operating to main- 
tain or advance the value of gold, is the exclusive power with 
which gold is invested by law to j^ay debts in states A to F ; 
while the stock of the dearer metal available to sustain the 
drain described, is made up, not of all the gold in the sixteen 
states A to P, or in the ten states A to J, but only of the 
gold in the four bi-metallic states, G to J. 

Now, let us suppose the sixteen commercial states to be 
somewhat differently divided, as follows : 

A, B, C, D, (E, F, G, II, I J, K, L,) M, N, 0, P. 

The bi-metallic system is now not merely twice as strong but 
stronger in a far higher proportion, since not only is the 
amount of the dearer metal subject to drain increased, but the 
demand for that metal, in j^reference to silver at 15| : 1, noAV 
comes from four covmtries only, instead of six, as formerly. 

The transfer of still another state from each of the two 
single-standard groups, would vastly increase the stability of 
the bi-metallic system. 

A, B, C, (D, E, F, G, H, I, J, K, L, M,) N, O, P. Not 
only would the base of the system be broadened by bringing 
the dearer metal of ten states, D to M, under tribute, 
in the event of changes operating on the supply of either 
metal to affect its value ; but the force of the causes 
threatening' the equilibrium of the system would be reduced, 
since the demand for the dearer metal would now come from 
only three states : A, B, C, in the case of a cheapening of silver 
relatively to gold ; N, O, P, in the case of a cheapening of 
£jold relatively to silver. Those three states cannot take the 
dearer metal indefinitely. They would soon be surfeited. A 
further increase of money in them would bo followed by a 



I 



BI-METALLISM. 417 

fall in its value, which would soon proceed so far as to bring 
the metals together again. What one would lose in value 
through increase of supply, the other would tend to lose 
through decrease of demand. 

And it is to be noted that, with a bi-metallic league embrac- 
ing so many states, those which tended naturally to the use of 
silver as money would continue to use silver predominantly ; 
those which tended to use gold would still use gold as their 
main money of circulation. "Whenever causes began to 
operate to cheapen silver relatively to gold (at the mint ratio 
between the two metals established by the league), the gold 
using countries would take some additional silver and discard 
some gold ; but this increase of demand for silver and dimi- 
nution of demand for gold would check the movement to 
divergence before the character of the circulating medium 
became greatly changed. In the event of a cheapening of 
gold relatively to silver, the substitution of gold for silver, in 
the silver-using states, to the extent only of a small fraction of 
their circulation, would suffice to put a stop to the move- 
ment. 

441. This is the Bi-metallic scheme. The question of secur- 
ing the co-operation of independent states to any end, is a 
political, not an economical question : that is, the desired end 
is to be obtained by the action of governments, moved by 
various considerations and interests, and not by the laws of 
trade. 

Our limits will not permit us to enter into a discussion of 
the causes which have, since 1874, suspended the bi-metallic 
policy of the Latin Union, or of the probabilities of the future 
respecting the indifferent use of gold and silver as money. 



X. 

PAUPERISM. 

442. The Impotent vs. the Abie-Bodied Poor.— The 

relief of the impotent poor, whether by private or by public 
charity, is, so far as political economy is concerned with it, a 

27 



418 POLITICAL ECONOMY. 

question relating to the consumption of wealth. It is so much 
a mattei* of course, under our modern civilization, that the very 
young and the very old, the crippled and deformed, who are 
unable to earn their own maintenance, shall not be allowed to 
starve, that the matter of relief to these classes becomes one of 
administrative detail, that does not require even to be alluded 
to in an elementary treatise on economics. The experience of 
that country from which we derive our law and much of our 
administrative machinery, is, however, oo instructive as to the 
influence for mischief upon the entire laboring population 
and upon the future production of wealth, that may be wrought 
by ill considered provisions for the distribution of alms to the 
able-bodied poor, as to make it worth while briefly to recite that 
experience here ; and thereupon to define the limits outside 
which the consumption of wealth for this purpose becomes 
prejudicial to production. 

We shall get at our subject most directly by inquiring, why 
it is that the laborer works at all. Clearly that he may eat. 
If he may eat without it, he will not work. The neglect or con- 
tempt of this very obvious truth by the British Parliament, dur- 
ing the latter part of the eighteenth and the early part of the 
nineteenth century, brought the working classes of the kingdom 
almost to the verge of ruin, created a vast body of hopeless 
and hereditary pauperism, and engendered vices in the indus- 
trial system which have been productive of evil down to the 
present day. 

443. Establishment of the English Pauper System.— 
By statute of the 2'i'th year of Henry VIII, the giving of 
alms was prohibited, and collections for the impotent poor 
were required to be made in each parish. By 1st Edward VI, 
bishops were authorized to proceed at law against persons who 
should refuse to contribute for this purpose, or should dis- 
suade others from contributing. By oth Elizabeth, Justices 
of the Peace were made judges of what constituted a reason- 
able contribution. By 14th Elizabeth, regular compulsory 
contributions were exacted. But the act of 43d Elizabeth cre- 
ated the permanent pauper system of England. 

The inci'easing necessity for legal provisions for the poor, 



PA U PERISH. 419 

during the period covered by this recital, is attributed by 
judicious writers, first, to the destruction of the abbeys and 
monasteries, which had, in earlier times, disbursed vast rev- 
enues in charity; and, secondly, to the effects of the flood of 
new silver from the mines of Spanish America, which, by 
rapidly raising prices and thus reducing the purchasing power 
of fixed incomes, had caused large numbers to be thrown out 
of employment. 

By the act of 43d Elizabeth, every person in the kingdom 
was given a legal right to pitblic relief, if required; but volun- 
tary pauperism was severely dealt with, and the able-bodied 
were compelled to work. At first, the body of inhabitants 
were to be taxed for the objects of this statute ; but subse- 
quent legislation threw the burden entirely upon the land- 
owners, where it remains to this day, with the exception that 
partial grants are now made out of the Imperial revenues to 
meet the charges of maintaining certain classes of paupers, 
such as the insane. 

444. Removal of the Workhouse Test.— The principle of 
requiring the able-bodied poor to work continued for gen- 
erations to be fundamental in the English pauper system; and 
for the better enforcement of this requisition parishes or 
unions of jjarishes Avere, by an act of 9th George I, authorized 
to build workhouses, residence in which might be made a con- 
dition of relief. Moreover, from the days of Elizabeth to that 
of George III, the spirit which actuated the administration of 
the poor laws was jealous and severe. Doubtless in that 
administration unnecessary harshness was sometimes prac- 
tised; but, on the whole, the effect on the working classes was 
wholesome, for it was made undesirable to become a pauper. 

On the accession of George III, a different theory came to 
direct legislation relating to poor relief, and a widely different 
temper of administration began to prevail. Six successive 
acts, passed in the first years of George III, intimated the 
changed spirit in which pauperism was thereafter to be dealt 
with. In the 22nd year of that reign, the act known as Gil- 
bert's act gave a fuller expression to this spirit. By that act 
the workhouse was no longer to be used as a test of voluntary 



420 POLITICAL ECONOMY. 

pauiDerisra : the 29th section provided that " no person shall be 
sent to such poor-house except such as are become indigent 
by old age, sickness or infirmities, and are unable to acquire a 
maintenance by their labor; except such or^^han children as 
shall be sent thither by order of the guardian or guardians 
of the poor, with the approbation of the visitor, and except such 
children as shall necessarily go with their mothers thither for 
sustenance." 

With respect to the rest of the poor, the act by its 32d sec- 
tion provided " That Avhere there shall be in any jjarish, town- 
ship or place, any poor jserson or persons, who shall be able and 
willing to workbutwho cannot get employment, the guardian 
of thej^oor of such parish, etc., on application made to him by 
or on behalf of such poor person, is required to agree for the 
labor of such poor jjerson or persons at any work or employ- 
ment suited to his or her strength and capacity, in any parish 
or place near the place of his or her residence, and to main- 
tain, or cause such person or persons to be properly main- 
tained, lodged and j)rovided for, until such emijloyment shall 
be procured, and during the time of such work, and to receive 
the mo7iey to he earned by such icorJc or labor, and apply it 
in such maintenance as far as the same will go, and make up 
the deficiency, if any P 

By the repeal of the workhouse test, and by the additional 
most injudicious j)rovision which we have placed in italics, 
a deadly blow was struck at the manhood and industrial self- 
sufficiency of the working classes of England. 

445. "The act," says Sir George Nicholls, in his History of 
the English Poor Law, " appears to assume that there can 
never be a lack of profitable employment, and it makes the 
guardian of the parish answerable for finding it near the 
laborer's own residence, where, if it existed at all, the laborer 
might surely, by due diligence, find it himself. But why, it 
maybe asked, should he use such diligence when the guardian 
is bound to find it for him, and take the whole responsibility of 
bargaining for wages and making up to him all deficiency ? 
He is certain of employment. He is certain of receiving, 
either from the parish or his employer, sufficient for the main- 



PA UPERISM. 421 

tenance of himself and his family; and if he earns a surplus, he 
is certain of its being paid over to him. There may be uncer- 
tainty with others, and in other occupations. The farmer, the 
lawyer, the merchant, the manufacturer, however industrious 
and observant, may labor under uncertainties in their several 
callings; not so the laborer. He bears, as it were, a charmed 
life in this respect, and is made secure, and that, too, without 
the exercise of care or forethought. Could a more certain 
way be devised for lowering character, destroying self-reli- 
ance, and discouraging, if not absolutely preventing, improve- 
ment ?" 

446. The Logical Outcome.— By 1832 the false and vicious 
principle on which Gilbert's act was based had been carried 
logically out to its limits in almost universal pauperism. The 
condition of the person who threw himself flat upon public 
charity was better than that of the laborer who strug- 
gled on to preserve his manhood in self-support. The com- 
missioners appointed in that year to investigate the workings 
of the poor law, found that, where the indejDendent laborer 
was able to earn by his week's work but 122 ounces of solid 
food, the pauper had 151 ounces given him in idleness. The 
former had only to abandon his effort to provide for himself, 
to be better provided for than was possible through his own 
exertions. The drone was better clothed, better lodged and 
better fed than the worker. 

All the incidents of this bad system were unnecessarily bad. 
The allowance for each additional child was so much out of 
proportion to the allowance for adults, that the more numer- 
ous a man's children the better his condition, and thus the 
rapid increase of an already pauperized population was encour- 
aged; while the allowance in the case of illegitimate children 
was even greater than for those born in wedlock. The British 
Parliament had turned itself into a society for the promotion 
of vice. " The English law," said Commissioner Cowell, in 
his report, " has abolished female chastity." " In many rural 
districts," writes Miss Martineau in her History of the Peace, 
" it was scarcely possible to meet with a young woman who 
was respectable, so tempting was the parish allowance for 



422 POLITICAL ECONOMY. 

infants in a time of great pressure." "It may safely be 
affirmed," said the Poor Law Commissioners of 1831, " that 
the virtue of female chastity does not exist among the lower 
orders of England, except to a certain degree among domestic 
servants, who know that they hold their situations by that 
tenure and are more prudent in consequence." 

Sucb may be the effects of foolish laws. The legislator 
may think it hard that his power for good is so closely 
restricted; but he has no reason to complain of any limits 
upon his jDOwer for evil. On the contrary, it would almost 
seem that there could be no nation, of any race of men, which 
a few laws respecting industry, trade and finance, passed 
by country squires or labor demagogues in defiance of eco- 
nomic principles, could not transform within half a generation 
into a nation of beasts. 

447. Poor Law Beform. — We have seen what a system the 
English squirearchy substituted for the economic law that he 
that would eat must work. The natural effects of this system 
were wrought speedily and effectually. The disposition to 
labor was cut up by the roots; all restraints upon increase of 
population disappeared under a jDremium upon births; self- 
respect and social decency vanished before a money-premium 
on bastardy. The amount expended in the relief and main- 
tenance of the poor had risen, in 1832, to £7,000,000. 

In this exigency, which, in truth, constituted one of the 
gravest crises of English history. Parliament, by the Poor 
Law Amendment Act (4th and 5th, William IV) returned 
to the principle of the act of Elizabeth. The workhouse test 
was restored; allowances in aid of wages were abolished; paid 
overseers were appointed, and a central system was created 
for the due supervision of the system. Illegitimacy was dis- 
couraged by punishing the father, instead of rewarding the 
mother; and the law of pauper settlement* was modified so as 



*Tlie law of parochial settlement was enacted in the reign of Cliarles 
II. While other restrictions upon the movements of population gnul- 
uallygavewa3% during the two centuries following, before the expan- 
sion of industrial enterprise and the liberalizing tendencies of modern 
thought, the mischievous tendencies of the Law of Settlement were given 



FA UPERISM. 423 

to facilitate the migration of laborers in search of employ- 
ment. 

By this great legislative reform the burden of pauperism, 
in spite of the continuing effects of the old evil system, was 
reduced in three years, by an average amount, the kingdom 
over, of forty-five per cent. 

448. The Principle that Should Govern Poor Relief.— 
The moral of this episode in the industrial history of England 
is easily drawn. It is of the highest economical consequence 
that pauperism shall not be made inviting ; but that, on the 
contrary, the laborer shall be stimulated to the utmost possible 
exertions to achieve self-support, only accepting relief as an 
alternative to actual starvation. It is not, to this end, neces- 
sary that any brutality of administration shall deter the 
worthy poor who have no other recourse; but, it should be 
the prime object of legislation on this subject to make the 
situation of the pauper less agreeable than that of the 
independent laborer, and that, by no small interval. The 
workhouse test for all the able-bodied poor, with genuine hard 
work, up to the limit of strength, are imperatively demanded 
by the interests of productive labor. Wherever there is a possi- 
ble choice between self-support and public supj)ort, the in- 
clination to labor for one's own subsistence should be quick- 
ened by something of a penalty upon the pauper condition, 
though not in the way of cruelty or positive privation. " All," 
says Mr, Geo. W. Hastings, "who have administered the 

a wider scope and au iocreassd severity, from reiga to reiga. Migratiou 
within tlie Kingdom was practically prohibited. If the laborer, in search 
of employment crossed the boundaries of that one of the fifteen thous- 
and parishes of England in which he belonged, he was liable to be 
apprehended and returned to the place of his settlement; while parish 
ofBcers Avere perpetually incited by the fears of the rate-payers to the 
utmost zeal in hunting down and running out all possible claimants of 
public charity, on whom, if unmolested, residence would confer a right 
to support. "Where," saj^s Prof. Rogers, "an employer wished to 
engage a servant from a foreign parish, he was not permitted to do so 
unless he entered into a recognizance, often to a considerable amount, to 
the effect that the new comer should not obtain a settlement, else the 
bond to be good against the employer. Parochial registers are full of 
such acknowledgments." 



I 



424 POLITICAL ECONOMY. 

Poor Law must know the fatal readiness with which those 
hovering on the brink of pauperism believe that they cannot 
earn a living, and the marvellous way in which, if the test be 
firmly applied, the means of subsistence will be found some- 
how." 



XI. 

THE REVENUE OF THE STATE. 

449. The revenue of the State may be derived from: 
I. Voluntary Contributions.* 

We who have lived in an age of legality can scarcely raise 
our minds to contemplate a state of society where the ex- 
penses of government should be met through spontaneous 
self -assessment by the citizen ; yet, in a more primitive condi- 
tion, such a state of things has existed widely, f and in a 
few happy instances has come down nearly to our day. 

The papal revenues J may perhaps be brought under this 
title. Adam Smith cites Hamburgh, Basle, Zurich, Under- 
wald, Holland, and other communities, where the self -valuation 
of the citizen was accepted. 

An American, § long resident in Europe, thus describes his 
experience in a community Avhere the larincij^le of self -assess- 
ment still survived: 

"In several of the smaller political jurisdictions of Europe, 
the historic tax gatherer has been found superfluous. For 
four years it was the good fortune of the present writer to be 

* Voluntary Taxation, says Emile de Girardin, it is the State stimu- 
lated ; it is tiie State economical ; it is the State Republican ami Demo- 
cratic. 

•{•The wnrds Dona, Benevolences, etc., in the history of revenue, 
testify to the original assumption that contribution was voluntary. 

X The Pope was the greatest capitalist of the ]\Iiddle Ages. The 
Briti.'ih Parliament atone time declared the revenues derived from the 
peop'e of tliat Kingdom by the Pope to be five limes as great as those 
obtained by the Crown. 

§ Rev. Dr. Warren, President of the Boston University. 



THE RE VENUE OF THE ST A TE. 435 

domiciled in one of these communities. Incredible as it may- 
seem to believers in the necessity of a legal enforcement of 
taxes by pains and penalties, he was, for that period, by law 
and usage, in the strictest sense of the term, his own assessor 
and his own tax gatherer. In common with the other citizens, 
he was invited, without sworn statement or declaration, to 
make such contribution to the public charges as seemed to him 
just and equal. That sura, uncounted by any official, unknown 
to any but himself, he was asked to drop, with his own hand, 
into a strong public chest; on doing which, his name was 
checked off the list of contributors, his duty done. Nor can 
he soon forget the sense of dignity and honor and chivalrous 
generosity which this trustful bearing of the government in- 
spired. Every citizen felt a noble pride in such immunity 
from prying assessors and rude constables. Every annual 
call on that community was honored to the full." 

450. II. Public Property, Lucrative Prerogatives, and 
State Enterprise. 

The following may be named as the chief sources of reve- 
nue under this head. 

(1.) Rent-charges in favor of the state as the proprietor of 
all lands. This has been fully discussed under the title : the 
Unearned Increment of Land. 

(2.) Escheat : the principle that the state is the proprietor 
of all property to which individual titles or claims are lost. 
This principle was early established in all countries whose 
legal or fiscal history we know, and finds full recognition in 
many barbarous communities.* 

It is evident that the scope of this principle, from the point 
of view of revenue, will widen or contract in correspondence 
with the laws regulating the descent and bequest of prop- 
erty and prescribing the times and modes of proving 
claims, in which respects some countries are much more lib- 
eral than others. Under the feudal system, escheat consti- 



* Baron, in his account of Tonqueen, says that the ruler is "heir 
general of all the eunuchs or capons, and has, in a manner, all tliey 
leave." 



426 POLITICAL ECONOMY. 

tuted a most important source of revemie. In England, the 
right of devising real property did not exist after the Con- 
quest, until the time of Henry VIII. Modern society, how- 
ever, whether out of sympathy with the instincts of property- 
right, or from a positive desire to promote the spirit of accu- 
mulation, has given continually wider extension to the power 
of bequest and to the principle of inheritance, until escheat, 
as a source of revenue, has ceased to be of much import- 
ance. 

In 1795, the great English law reformer, Jeremy Bentham, in 
a pamphlet entitled, " Escheat vice Taxation," seriously pro- 
pounded a scheme by which the entire revenue of the state 
should be derived from this source. 

Bentham proposed an extension of the existing law of es- 
cheat, " a law coeval with the very first elements of the Con- 
stitution," and a corresponding limitation of the power of 
bequest. The effect intended was to be " the appropriating to 
the use of the public all vacant successions, property of every 
denomination included, on the failure of near relations, will 
or no will, subject only to the power of bequest, as hereinafter 
limited," 

By near relations, he means "such relations as stand Avithin 
the degrees termed jjrohibited with reference to marriage." 

Further, in the case of " such relations within the pale as 
are not only childless, but without prospect of children," he 
proposes, that, instead of taking their share in money, they 
should take only the interest of it, in the shape of an annuity 
for life. 

"As to the latitude to be left to the power of bequest," 
he writes, " I should propose it to be continued in respect to 
the half of whatever property would be at present subject to 
that power." 

Bentham argues that in the distribution of property there 
is no sense of hardship but in proportion to disappointment : 
exj^ectation thwarted. " Hardship," he says, " depends upon 
disappointment ; disappointment upon expectation ; expecta- 
tion upon the dispensations, meaning the known dispensations, 
of the law." 



THE REVENUE OF THE STATE. 437 

If, ther^f ore, the law were so framed, distant relations* would 
not expect to succeed; would consequently not be disap- 
pointed; and would consequently suffer no hardship. 

451. (3.) Fines and Forfeitures for Criminality and Delin- 
quency. Since government exists largely for the pro- 
tection of life, property and labor, the cost of maintaining 
government and administering justice might properly be 
drawn, if it were found possible, from the delinquent and 
criminal class. 

In feudal times, fines and forfeitures constituted a very im- 
portant source of revenue to the crown. This was due es23e- 
cially to two causes. 

{a) Under the feudal system the idea was kept prominently 
in view that the relation of the tenant to the lord was a per- 
sonal one, ana any failure in ^^ersonal loyalty, even though it 
did not rise to what would be deemed, in these days, a crime 
against society, was punished by heavy fines or by total for- 
feiture. 

(^) The crimes of those days were largely jDolitical, and 
political offenders are likely to be men of wealth and position 
who will be fat subjects for amercements. The Wars of the 
Roses were so fruitful of forfeitures that n large proportion 
of the land of the realm became the property of the crown. 
In the present age political crimes have become compara- 
tively infrequent, and the criminal class are now mainly 
drawn from the poor,' who are not proper, perhaps not pos- 
sible, subjects for pecuniary exaction. 

Hence this branch of public revenue has shrunk into com- 
parative insignificance. Fines and forfeitures pay a part of 
the expense of strictly judicial establishments, especially of 
the lower or police courts ; but they add little to the general 
receipts of the state. 

*If, as the Supreme Court of the United States has declared, the right 
to tax is the right to destroy, the principle of Bentham's proposal is 
sanctioned by the legacy and succession duties of England, which exact 
ten per cent, from strangers, and only one per cent, from children. 
Intermediate rates are fixed for successions within certain degrees of 
consanguinity. 



428 POLITICAL ECONOMY. 

(4.) Tributes from colonies, dependencies and conquered 
nations, including war fines, requisitions and indemnities. 

The subject is a fascinating one;* but I must resist the 
temptation to enlarge upon it. 

452. (5.) The sale of offices, honors and titles. 

This source of revenue makes a very prominent figure in 
the history of finance ; but has, at present, mainly a curious 
interest. 

The sales of offices, titles, etc., by the state, may fall into 
several different categories. 

(a) The sale of offices of dignity and honor, as in the 
case of the patents of nobility, granted by James I. f of Eng- 
land, the effect of which merely is to lower the real honor and 
dignity of such offices, perhajDS with only a political and 
social retribution. 

(J) The sale of offices, as under many of the Popes, which 
carry salaries in the nature of annuities terminable by death, 
the price paid for the so-called salary representing, more or 
less exactly from the actuarial point of view, the capitalized 
value of the annuity attached to it. 

(c) The sale of offices, as once practised largely in France, 



*It would be especially interesting to compare the s_ysteni of exaction 
practised by the Greeks, Carthaginians and Romans, iu ancient times, 
and by tlie Dutch and Portuguese, in modern times, with the English sys- 
tem of seeking the interest of the motlier country, or the conquering 
country, in the ri^lit lo impose navigation laws and connnercial restric- 
tions, and in the benefits of patronage iu oflicering the public service of 
colonies and dependencies. 

fThe sum paid to constitute a Baron was £10,000; a viscount, £15,000, 
au Earl £20,000.— Taylor, Hist, of Taxation in England. 

" The price of the dignity of a Baronet," says Taylor, " was equiva- 
lent to £1095, ninety-three of whom Avere created." 

These are instances of the sale of offices to willing piu'chasers. 
James' son, Charles I., undertook (lie sale of his offices to his snljjecis, 
xnlhj nilly. He revived the feudal practice of "Knight's Fee," and 
compelled persons holding land of a certain yearly vakic, to come up 
and be knighted, or submit to a fine for contumacy. Brodie says 
" Cliarles did not restrict it to men of landed property, but included 
lessees, merchants and others." — Hist. Br. Empire. 



THE REVENUE OF THE STATE. 429 

which carry exemptions from political burdens and from 
taxes. This amounts simj^ly to a sale of the right of the 
state in respect to taxation, and is, in eflEect, an anticipation 
of revenue. A government which was in such straits as to 
resort to practises like these would be likely to make a very 
bad bargain for itself ; and so in France it ^^roved.* 

"As the finances became more embarrassed," says M. de 
Tocqueville, " new offices were created, with exemptions from 
taxation or privileges by way of salary ; and as they were 
created to supply the wants of the treasury and not the re- 
quirements of the public service, an immense number of them 
were useless or positively mischievous. 

" As early as 1664, when Colbert instituted an enquiry into 
the subject, it was discovered that the capital invested in this 
miserable business nearly amounted to 500,000,000 livres. It 
is said that Richelieu abolished 100,000 offices. They rose 
anew, under fresh names. For a trifle of money, the state 
bartered away the right of directing and • controlling its own 
servants. The net result of this system was a government 
machine, so vast, so complicated, so cumbrous, and so ineffi- 
cient that it was actually found necessary to let it stand idle, 
while a new instrument, constructed with more simplicity 
and better adapted for use, performed the work w^hich these 
countless functionaries were suj)posed to do." 

It was Louis XII w^ho systematized the sale of offices, and 
Henry IV who first sold hereditary ones. 

{d) The sale of offices, as notably under the Roman Empire, 
which carry rights, privileges and exclusive opportunities. by 
which the purchaser may reimburse himself for his outlay, 
either through a monopoly or through the collection and dis- 
bursement of the public revenue. 

453. (6.) Domains (L'Etat Capitalists) 

Even under the modern European principle of the private 
ownership of land, the state is, in all countries, the possessor of 
larger or smaller domains from which a revenue may be de- 
rived, 

* Clamugerau, Histoire del' Impot en France, presents much matter 
of iulevest iu this couaecLion. 



430 POLITICAL ECONOMY. 

It is the habit of writers on finance to speak, and per- 
haps justly, in the most disparaging tone of the admin- 
istration of public estates, for pi-oductive uses.* Adam 
Smith expresses himself in the strongest terms. " The 
servants of the most negligent master are better superin- 
tended than the servants of the most vigilant sovereign." 
Referring to his own country, he says : " The crown-lands of 
Great Britainf do not, at present, afford the fourth part of 
the rent which could probably be drawn from them, if 
they were the property of private persons. If the crown- 
lands were more extensive, it is probable they Avould be 
still worse managed." And, not to disparage English admin- 
istration too greatly, he adds : " In the present state of the 
greater part of the civilized monarchies of Europe, the rent 
of all lands in the country, managed as they would prob- 
ably be if they all belonged to one proj)rietor, would scarce 
amount, perhaps, to the ordinary revenue which they levy 
upon the people, even in peaceful times." 

* M. Leroy Beanlieu dwells upoa the distinction between the prop- 
erty of the Slate, which is left to the enjoyment of the community, or 
■wliich is devoted to government uses, and that which is sought to be 
administered productively. Tlie former he terms (?o/rta(«e ^raWwy the 
latter domaine pi'ive de I'Etat. 

f Did our space allow, it would be interesting to refer to the aliena- 
tions and resumptions and renewed alienations of the Crown-lands, 
through the reigns of the Tudors and the Stuarts. But, strangely 
enough, it was that good Dutch King, that model financier, William III, 
who effected the greatest havoc among the royal domains, a havoc far 
exceeding that of the most insensate of his predecessors. Wise and 
strong and brave as Williiun was, one can scarcely read of the wholesale 
squandering of the property of the Crown by this monarch, without the 
suspicion that he clearly saw the coming ou of the modern system of 
finance, when the necessities of the state sliould be met, no longer by 
fines and forfeitures and escheats and purveyance, but by systematic 
taxation ; and that, in something like contempt for the feudal sources of 
revenue, he purposely chose to dissipate the patrimony on which his 
predecessors had relied. " At the end of William's reign," says Sir E. 
May, "Parliament, having obtained accounts of the state of the land 
revenues, found that they had been reduced by grants, alienations, in- 
cumbrances, reversions, and pensions, until they scarcely exceeded the 
rent-roll of a squire." 



THE REVENUE OF THE STATE. 431 

However mucla this statement might require to be modi- 
fied with respect to the management of government 
property in a country like Germany, with its admirable 
civil service and its systematic administration of public 
trusts, no one would think of questioning the full literal 
truth of Adam Smith's declaration if applied to our own coun- 
try, with its civil service based upon the principle of rotation 
in office and appo-iiitment as the reward of partisan activity. 
When one sees what a torrent of abuse a Secretary of the 
Interior may draw down uj^on himself by venturing to take 
the liberty to ask timber-thieves to drop the loads they are 
carrying away from surveyed lands belonging to the gov- 
ernment, he cannot find it in his heart to question the wis- 
dom of President Jackson's recommendation, in 1832, when 
he said, "It seems to me to be our true policy that the 
public lands shall cease, as soon as practicable, to be a 
source of revenue, and that they be sold to settlers, in 
limited parcels, at a price barely sufficient to reimburse 
the United States the expense of the present system, and 
the cost arising under our Indian contracts." 

Of the present European States, Russia, Prussia, Bavaria, 
Sweden, and Hanover, derive considerable revenue from pub- 
lic domains, the first named being so pre-eminent in this 
respect that M. Cherbuliez* mentions it as almost the only 
state which draws a notable proportion of its revenue from 
such a source. 

454.— (7.) State Enteri3rise (L'Etat Entrepreneur). — Wliat- 
ever the disabilities of tlie State in acquiring a revenue 
from the rental or sale of proj)erty, whether that consist of 
agricultural lands, or mines, or forests, or fisheries, or j)hosphate 
deposits, those disabilities are greatly increased when the state 
seriously undertakes the management of commercial or manu- 



* Science Economique. Worth mentioning in this connection are the 
sugar plantations, private property of the Khedive of Egypt, tlie Guano 
deposits of Peru and Chili, and the mahogany forests of Honduras, on 
the credit of which vast loans have been obtained, within recent years, 
in the London market. 



433 POLITICAL ECONOMY. 

facturing business.* The state as capitalist is at no small dis- 
advantage; as entrepreneur, that disadvantage is vastly- 
aggravated. 

Yet the rule of failure, on this side of governmental agency, 
is not unbroken. Dr. Smith mentions the republic of Ham- 
burg as deriving a considerable revenue from a public wine 
cellar and from an apothecary's shop. The profits of bankingf 
have been realized in a notable degree by several cities that 
were also States, as Hamburg, Venice and Amsterdam. The 
Post-Office can be made, and has been made, " to pay," and 
that handsomely. The business of distilling in Russia, of sugar 
refining in Egypt, and of oj^ium manvifacture in British India, 
have been made the subject of no inconsiderable j^rofit to gov- 
ernment. The supply of towns in the matter of water, and, in 
a smaller number of instances, of gas, has been attempted, not 
unsuccessfully, by municipal governments. 

The instance which goes furthest to contradict the generally 
received opinion of the hopeless incapacity of the state to con- 
duct industrial enterprises, is afforded by the railways of Ger- 
many. From the point of view of property and administration, 
the transjDort system of the Empire is highly complicated. 
The Vienna correspondent of the London Economist^ in 1875, 
stated that in Alsace and Lorraine were only Imperial railways; 
in Baden and Wurtemburg, only state railways; in Prussia and 
Bavaria, state railways and private companies' lines were 
operated side by side; while in other States all the railways 
were the property of shareholdei's and private persons. The 
whole railway sj'stem of the Emj^ire appears to be energetically 
and economically managed. Certainly, the rapidity with which 
vast columns of invasion were concentrated on the frontier in 



* Adam Smith remarks that no two cliaracters are nioi'c iuconsisteut 
than those of trader aud sovereign. ' ' If llie ti-ading spirit of the English 
East India Company rendered tliem very bad sovereigns, the spirit of 
sovereignty seems to have rendered tliem equallj'' bad Ir.idcrs." 

f Tlic Prussian Banlc in 1874 declared dividends of 12f per cent. One- 
half llie net gains of the Bank go lo (lie Stale. The United States -was 
a part ner to llie extent of oue-lif tli ia the Bank of 1700-1810, aud again in 
that of 181G-18:3G. 



THE REVENUE OF THE STATE. 433 

1866 and again in 1870, has been the object of unqualified 
admiration, the world over. 

455. III. Quasi Taxes.— The following may be named as 
sources of revenue under this head: 

(1.) Monopolies, conferred u23on individuals or corporations, 
in consideration of a capital sum paid down, or of a definite 
share in the resulting profits. 

Monopolies have played a most conspicuous part in the his- 
tory of public revenues; and, in spite of the spirit of the age 
which is, in general, strongly opposed to exclusive privileges 
of manufacture and sale, they still form a prominent feature 
in the budget of many of the most progressive countries of 
Europe. 

Monopolies may be commercial, industrial, or financial. 
The distinction between the monopolies of the past and those 
of the present day, is most marked. Formerly monopolies 
were granted, for the profit of the government, to persons and 
corporations to carry on a vast variety of operations,* great 
and small alike, most of which were susceptible of private 
management. 

* The story of the rapid extension of monopolies in Eugland under 
Elizabeth, ol; tlie indignation aroused thereby thronghout the realm, and 
of the submission of the haughty Tudor to the rising storm, is familiar to 
every school-boy. Hume remarked that had Elizabeth's system of mon- 
opolies been continued, the England of his day would have contained as 
little iudustiy us Morocco or the coast of Barbary. 

Charles I. played the same game as Elizabeth, and aroused an equal 
popular indignation, until even the subservient judges kicked at the 
restraints everywhere imposed upon trade. 

Says Brodie, after referring to the sonp monopoly: "Almost every 
article of ordinary consumption, whether of manufacture or not, was 
exposed to a simihir abuse; salt, starch, coals, iron, wine, pens, cards and 
dice, beavers, felts, bone-lace, «fcc., meat dressed in taverns, tobacco, 
wine-casks, brewing and distilling, lamprons, weighing of hay and straw 
in T.ondon and Westminster, gauijiug of red herrings, butter-casks, kelp 
and seaweed, linen cloth, rags, hops, buttons, hats, gutstriug, spectacles, 
combs, tobacco pipes, &c., saltpetre (one Hillyard was fined £5,000 for 
selling this article contrary to proclamation), gunpowder, in short, 
articles down to the sole gathering of rags, were all under the fetters of 
monopolies, and consequently deeply taxed." 



434 POLITICAL ECONOMY. 

Such were the monopolies of the 17th and 18th centuries. 
To-day, under the light of political economy, all prudent gov- 
ernments restrict the princij^le of monopoly to a very few very 
important interests, and, by preference, to those which in their 
nature tend towards monopoly. Thus Bentham, that great 
reformer of the law, that arch enemy of monopolies, to whom 
more than to any one else England owes the abolition of 
usury laws, proposed and urged the collection of large revenues 
from bankers, who were to be compensated by a monopoly 
within then- several districts, on the ground that banking was 
a business tending to monopoly at the best, and that the State 
might, therefore, make that monopoly complete, with little 
injury to the community, yet with great gain to the revenue. 

In the same way, taxes on railway goods and passenger 
traffic in England and France have been defended, even by 
free-traders, on the ground that railway transportation is nec- 
essarily very much of a monopoly; that full and effective com- 
petition can rarely be introduced and never long maintained ; 
and that the state may, therefore, accepting the fact of a sub- 
stantial monopoly, properly derive a profit therefrom by 
becoming virtually a partner in the business. 

But there are also certain special interests of great com- 
mercial importance, in every way fitted for private manage- 
ment, which, on account of their high capability for yielding 
revenue, some of the most enlightened nations still constitute 
exceptions to the principle of open public competition in manu- 
factures and trade. 

Among the ubiects thus specially excepted by modern states 
from the j^rinciple of competition, in the interests of revenue, 
are opium, salt, tobacco* and matches. 

456.— (2.) Lotteries. This needs only to be mentioned as a 
source of revenue largely made use of, in the past, by almost 
all governments, and still forming an important feature in 
the budgets of many civilized countries. Of the moral and 

*Tlie tobacco monopoly exists iu France, Italy, Spain and Austria. 
Prince Bismarck lius strenuously endeavored to introduce this monopoly 
into the revenue system of Germany. 



THE REVENUE OF THE STATE. 435 

social objections* to this system of raising money, we are not 
called to speak here. Economically speaking, there can be 
no doubt that, while lotteiies afford a most effective means of 
securing a present revenue, appealing, as they do, to one of 
the strongest passions of human nature, they yet, in their 
ultimate effect, most severely weaken the state by discourag- 
ing honest and patient industry, and thus, by a manifest 
retribution, impair the revenue capabilities of any people 
among whom they come to be extensively employed. In two 
of the States of the American Union, lotteries are still con- 
ducted under government patronage. Every one is familiar 
with them as agencies for collecting money for charitable 
and religious associations. 

457. — (3.) Purveyance. — The right of buying provisions and 
other necessaries for the use of the royal household, at an 
appraised valuation, in preference to all other purchasers and 
even without the consent of the ownei', might have been 
included among the " lucrative prerogatives " mentioned under 
a former head, or may indifferently be regarded as a quasi 
tax. Once extensively practised, purveyance is now greatly 
restrained and confined, and in almost all highly civilized 
countries is wholly discontinued — except during actual war, 
or in the case of a royal progress. 

In his great speech on Retrenchment, Burke thus alludes 
to this, then obsolete, prerogative of the crown : 

" In former days, when the household was vast, and the 
supply scanty and precarious, the royal purveyors, sallying 
forth from under the Gothic portcullis to purchase provisions 
with power and prerogative instead of money, brought home 
the plunder of an hundred markets, and all that could be 
seized from a flying and hiding country, and deposited their 
spoil in an hundred caverns, each with its keeper. There 
every commodity, received in its rawest condition, went 

*It is to be noted that the laws against lotteries, which doubtless did 
much to educate tliat public sentiment wliich now makes even public 
lotteries impossible in many countries, originated, in almost every 
instance, in the desire to secure to the State the profits of this source of 
gain. 



436 POLITICAL ECONOMY. 

through all the process which fitted it for use. This inconve- 
nient receipt produced an economy suited only to itself. It 
multiplied offices beyond all measure, — buttery, pantry and 
all that rabble of places, which, though profitable to the 
holders and expensive to the State, are almost too mean to 
mention." 

458. — (4.) Fees. — A fourth mode of raising revenue which 
partakes largely of the nature of a tax, without bearing its 
form, is through the exaction of fees for stated or occasional 
services performed by the agents of the State. 

So far as fees are, in the phrase of Garnier, not fiscal, that 
is, so far as they constitute merely the equivalent, on a fair 
estimation, of the expense to which the individual receiving the 
benefit of the service has put the state, on his own behalf, 
they do not come under the present title, as they are not a 
source of revenue. We are only concerned here with fees 
Avhich are exacted by the state, as a means of revenue, in 
excess of the expense to which the state is put by the per- 
formance of the service, and where, perhaps, as is often the 
case, the so-called service is itself interposed only as an occa- 
sion for the imposition of a tax, as in the case of many of 
our custom-house services. 

Into the same category would properly fall all the fees 
exacted of individuals where the main benefit of the service 
is received by the community, even though the aggregate of 
such receij)ts should not equal the expense to the state of 
maintaining some necessary service. Judicial fees are often 
of this nature, the cost of obtaining the adjudication of a 
great princij^le having been formerly thrown upon single indi- 
viduals who Avere frequent! 3^ less benefited than thousands of 
others by the decisions reached. This system was fiercely 
attacked by Bcntham. 

" Who goeth to warfare at any time at his own charges ? 
saith St. Paul. It is the poor litigant who makes war upon 
injustice." 

It is also fairly a question whether the maintenance of tlie 
ordinary roads of a country is not, in such a sense, and in so 
far, a general charge, tl)at fees, under the name of tolls, con- 



THE REVENUE OE THE STATE. 437 

stitute a quasi tax, instead of being, according to tlie assump- 
tion on which they are collected, the price paid by the indi- 
vidual for a service rendered to himself directly and exclus- 
ively. 

Of the remaining forms of quasi taxes (5) seigniorage on the 
coin, and (6) the issue of paper money, whether with or with- 
out a reserve of specie for redemption purposes, enough has 
been said in Part III. 

459. IV. Taxation in its Various Forms.— Taxation may 
bo considered (a) according to its ultimate Bases, which may 
be Rent-bearing land, "Wealth, Revenue, Faculty, or Expen- 
diture, one or all of these. 

The first we have already discussed under the title " The 
Unearned Increment of Land." A tax on rent, we have seen, is 
not a general tax. It does not fall in any degi-ee upon those 
members of the community who do not own land. It does 
not affect the price of i^roduce. It amounts merely to the 
assumption, or usuri^ation, as one is disposed to regard it, by 
the state, of the surplus of produce above the cost of culti- 
vating the no-rent lands. 

A tax upon the no-rent lands, either by themselves, or in 
common with other lands, is a tax on produce. 

460. Again, taxation may be considered [b) with reference 
to the equities of contribution. In this connection we might 
discuss: 

(1.) The Physiocratic theory of Taxation. The French 
Physiocrats (par. 43) holding, as they did, that land alone of 
all agencies of production, yields a return above the cost of 
production, proposed, thereuj^on, to make land yield all the 
revenue of the state, as a measure both of justice and of 
political expediency.* 

* " lis etablisseut d' abord que la terre seuledonne un revenu uet, c'est- 
adirc, uu revenu qui oxcede les depenses necossaires pour reulretien 
des cultures et des cultivateurs ; lis etablissent ensuite que ce revenu ii't 
est la source qui alimcnte tons les autres revenus; ils en concluent qu'il 
est inutile cle poursuivre les revenus mobiliers S, travers les mille canaux 
oil ils circulent; qu'il est plus commode et plus juste de les atteindre a 
leur source, et ils aboutissent a la theorie de i"imp6t unique sur la rev- 
enu foncier." Clamageran. — Hist, de I'Impot ea France. 



438 POLITICAL ECONOMY. 

This tax is to be distinguished from the assumjition by the 
state of the Unearned Increment of Land, as proposed by Mr. 
Mill and his associates. The latter, as Ave have seen, would 
not raise the price of produce. The former would do so, and 
was intended to do so. 

But, with the complete refutation of the physiocratic the- 
ory of production fell the physiocratic theory of taxation, 

(2). The Social Dividend Theory of Taxation, which is, in 
effect, that the members of the community should contribute 
to the public support in proportion to the benefits they derive 
from the jjrotection of the state, or according as the services 
they receive cost the state more or cost it less. 

(3). A grouj) of theories respecting the equities of taxation, 
differing not greatly among themselves, which giA'-e rise, 
respectively, to what we may call the-equality-of -sacrifice 
rule; tbe rule of contribution-according-to-ability, and the 
leave-them-as-you-find-them rule. 

It is in discussing the theories of this group that the ques- 
tion of progressive taxation arises. That question is common 
to all the theories of this groujD. 

(4). We have the view taken by Mr. McCulloch,* in 
despair of reaching the equities of the case, which may be 
called the purely economical theory of taxation. The discus- 
sion of this theory brings up the whole question of the diffusion 
or " repercussion" of taxes. 

461. (c.) Tlie foregoing discussions are introductory to the 
consideration of any specific tax or group of taxes, or existing 
tax system, respecting which we may enquire how far it 
answers the requirements of equitable contribution, or, on 
the other hand, if we abandon the rule of equity altogether 

as did Mr. McCulloch — how far it secures to the state the 

needed revenue with a minimum of irritation to the public 
mind, with a minimum of expense and loss in collection, and 
with a minimum disturbance to trade and industry. 



* "The distinguisliing feature of tlie best tax is, not (hat it is most 
nearly proportioned to the means of individuals, but that it is easily 
assessed and collected, and is, at the same time, most conducive to the 
public interests." 



TAXA TION. 439 

"^ Under the next title we will enquire, as fully as our narrow 
limits of space will peimit, respecting the several theories of 
taxation which have been indicated. 



XII. 



THE PRINCIPLES OF TAXATION. 

462. Inadequacy of the Literature of Taxation. — 

According to an eminent German financier, Hoffmann, it 
would be difficult to find in the whole realm of political 
economy a subject more generally misconceived, more disfig- 
ured by false views, more degraded by a partial study, than 
Taxation. "If," adds M. de Parieu, author of the ablest 
French work on the subject, " this j^roposition appeared true 
in a country where the problem of instruction in administra- 
tion has for a long time been studied, it is jDrobably still more 
so in France, where the practice is even further separated from 
the science of administration." 

The body of English literature in finance is shabby in the 
extreme. Adam Smith, indeed, gave to taxation about one- 
fourth of his " Wealth of ISTations," but his treatment is far 
from satisfactory. Ricardo entitled his great work " The 
Principles of Political Economy and Taxation ; " and as a 
study of the propagation of an economical impulse from object 
to object and from class to class, Ricardo's discussion of tax- 
ation is masterly ; but its underlying assumption of perfect 
competition necessarily makes many of his conclusions incon- 
sistent with the facts of industrial society. J. R. McCul- 
loch did not treat of fi-nance in his " Political Economy ; " but 
he discussed taxation and the funding system in a separate 
work. This completes the roll of systematic English 
writers on taxation whose works are worth mentioning. 
Mr. Gladstone's budget-speeches and Mr. NcAvmarch's 
papers on the National Debt are the only important contri- 
butions to finance which have been made in this generation. 

* The substance of this paper appeared iu the Princetoa Eeview of 
January, 1880. 



440 POLITICAL ECONOMY. 

463. Adam Smith's Maxims.— Perhaps as good an idea 
of the feebleness and emi^tiness of the Enghsh literature in 
this department can be obtained as in any other way by refer- 
ring to Adam Smith's maxims respecting taxation. Dr. Smith 
proposed four maxims, or principles, " which," says Mr. Mill, 
" having been generally concurred in by subsequent writers,may 
be said to have become classical." Probably tAvo-thirds of all 
English writers on political economj^ since Smith have refer- 
red to these rules, and more or less fully quoted them ; 
many have adopted them entire, and made them the basis of 
their treatment of the subject of taxation. 

The first and most im^jortant, as it is the most famous, 
of these rules concerns the ground of assessment, as fol- 
lows : "The subjects of every state ought to contribute 
towards the support of the government as nearly as possible 
in proportion to their respective abilities-; that is, in proj)ortion 
to the revenue which they respectively enjoy under the pro- 
tection of the state." 

464. The Social-Dividend Theory of Taxation.— This 
maxim, though it sounds fairly, will not bear a close examina- 
tion. What mean those last words, "under the protection 
of the state " ? They are either irrelevant, or else they 
mean that the j^i'otection enjoyed affords the measui'e of 
the duty to contribute. But, the doctrine that the members 
of the community ought to contribute to the public support 
in proportion to the benefits they derive from the protection 
of the state, or according as the services performed in their 
behalf cost less or cost more to the state, involves practical 
absurdities of the grossest character. Those who derive the 
greatest benefit from the pi-otection of the state are the 
poor and the weak — Avomen and children and the aged ; 
the infirm, the ignorant, the indigent. The man of wealth 
can in a degree protect himself. He is not brought, in the 
pursuit of his interests, into dangerous situations ; while at 
home he can defend himself from violence by appliances 
beyond the reach of the cottager. 

Even as among the well-to-do and wealtliy classes of the 
community, does the protection enjoyed furnish a measure of 



TAXA TION. 441 

the duty to contribute ? If so, the richer the subject or citi- 
zen is, the less, proportionally, should he pay, since the cost of 
protecting wealth in single hands increases at a lower ratio than 
the wealth itself. It is easier to guard and keep from harm 
1100,000 located in one place than the same amount distributed 
among twenty places. A man who buys protection in large 
quantities should get it at wholesale prices, like the man who 
buys flour and meat by the car-load. Moreover, it costs the 
state far less to collect a given amount from one taxpayer than 
from many. 

Returning to the maxim of Dr. Smith, I ask, does it put for- 
ward ability to contribute, or protection enjoyed, as affording 
tlie true basis of taxation ? Which ? If both, on what prin- 
ciples and by what means are the two to be combined in prac- 
tice ? 

465. Taxation According to Ability.— But if we take the 
last six words as merely a half-conscious recognition of the 
Social-Dividend theory of taxation, and throw them aside as 
inconsistent with Dr. Smith's real intention, we shall still find 
this much-quoted maxim far from satisfactory : " The subjects 
of every state ought to contribute towards the support of the 
government as nearly as possible in proportion to their respec- 
tive abilities ; that is, in proportion to the revenue which they 
respectively enjoy." 

But is the ability of two persons to contribute necessarily in 
proportion to their respective revenues ? Take the case of the 
head of a family having an income of $500 a year, of which 
$400 is absolutely essential to the. maintenance of himself and 
wife and children in health and strength to labor. Is the abil- 
ity of such a person, who has onl}^ $100 which could possibly 
be taken for public uses, one half as great as that of another 
head of a family similarly situated in all respects except that 
his income amounts to 11,000, and who has therefore IGOO 
which could conceivably be brought under contribution ? 
Manifestly not. 

We shall, then, still further improve Dr. Smith's maxim if 
we cut away all after the first clause : " The subjects of every 
state ought to contribute towards the support of the govern- 



443 POLITICAL ECONOMY. 

ment as nearly as possible in proportion to their respective abili- 
ties," The maxim as it stands is unexceptionable, but does not 
shed much light on the difficult question of assessment. 

466. The Leave-them-as-you-Pind-them Eule of Taxa- 
tion. — The best statement I have met of the principle of con- 
tribution based on ability is contained in an article in the 
Edinburgh Review oi 1833: " No tax is a just tax unless it 
leaves individuals in the same relative condition in which it 
finds them." What does the precept, which we may call the 
leave-them-as-you-find-them rule of taxation, demand? In 
seeking an answer to this question, let us enquire, historically, 
what bases have been taken for assessment. We note four:* 

1. Contribution has been exacted on the basis of Realized 
Wealth, commonly spoken of as capital. 

2. On the basis of Annual Income or Revenue. 

3. On the basis of Faculty, or native and acquired poAver of 
production. 

4. On the basis of Expenditure, or the individual consump- 
tion of wealth. 

These are the four historical bases of taxation. Let us see 
how far each in turn answers the requirement of Dr. Smith's 
maxim that the subject should contribute according to his 
ability; of Sir John Sinclair's maxim that the state should 
only exact what the subject ought spontaneously to have 
wiven; of the Edinburgh Reviewer's maxim that the tax 
ought to leave the members of the community in the same 
relative condition in which it finds them. 

And, first, of Realized Wealth as a basis of assessment. 
Wealth is accumulated by savings out of revenue. If, then, 
wealth alone is to be taxed, it is saving, not production, which 
contributes to the sujiport of the state. Economically there 
cannot be a moment's doubt that for government thus to draw 
its revenue from only that part of the produced wealth of the 
community which is reserved from immediate expenditure, 

* It will be uotcd that we do not mention Laud. The relations of 
taxes on land to the revenue of the State have been pointed out in par. 
459. 



TAX A TION. -443 

either for assurance against future ills and provision for future 
wants or for active employment in current production, must 
be in greater or less degree prejudicial. The question also 
^arises, where is the political or social justice of such a rule of 
contribution ? If my income belongs to me, to spend for my 
own comfort and gratification, without any deduction for the 
tises of the state, lohy should Hose my right to any part of it 
because I save it f To tax realized wealth is to punish men for 
not consuming their earnings as they receive them. Yet it is 
eminently for the public interest that men should save of their 
means to increase the capital of the country, 

467. Revenue as the Basis of Taxation. — Turning to Rev- 
enue, it would seem, on the first thought, that we had reached 
a rule of equitable contribution. Yet the rule of contribution 
according to revenue is subject to grave impeachment on 
grounds of justice. 

Here are two men of equal natural powers. One is active, 
energetic, industrious; he toils early and late and realizes a 
considerable revenue, on a portion of which the state lays its 
hand. The other lets his natural powers run to waste; trifles 
with life, lounges, hunts, fishes, gambles, and is content with a 
bare and mean subsistence. Was his duty to contribute to the 
support of the state less clear or less in degree than that of the 
other ? If not, how has his idleness, shiftlessness, icorthlessness, 
forfeited the staters right to a contribution from him in propor- 
tion to his cd)ilities ? 

We must, I think, conclude that, while to tax wealth instead 
of revenue is to put a premium upon self-indulgence in the 
expenditure of wealth for present enjoyment, to tax revenue 
instead of faculty is to put a premium upon self-indulgence in 
the form of indolence, the waste of opportunities, and the 
abuse of natural powers. 

<"6C. Expenditure as the Basis of Taxation. — Passing for 
the r.ioment by our third title, we find that the fourth basis 
taken for taxation has been Expenditure. This must not be 
confounded with taxes on consumption, as constituting a part 
of a tax system in which taxes on realized wealth, taxes on 
revenue, taxes on faculty, one or all of these, also appear. 



444 POLITICAL ECONOMY. 

Nor do -sve speak here of taxes on expenditure imposed ir 
practical despair of an equitable distribution of the burdens of 
government. We are now concerned with expenditure only 
as the single basis of taxation, in the interest of political 
equity. 

" It is generally allowed," wrote Sir William Petty, two 
hundred years ago, *' that men sliould conti'ibute to the public 
charge but according to the share and interest they have in 
the public peace; that is, according to their estate or riches." 

" Now, there are two sorts of riches, one actual and the 
other potential. A man is actually and truly rich according 
to what he eateth, drinketh, weareth, or in any other way 
really and actually enjoyeth. Others are but potentially and 
imaginatively rich who, though they haA^e poAver over much, 
make little use of it, these being rather stewards and 
exchangers for the other sort than owners for themselves. 

" Concluding, therefore, that every man ought to contribute 
according to what he taketh to himself and actually enjoyeth, 
the first thing to be done is," etc. etc. 

Arthur Young seems to have had the same view. After say- 
ing that every individual should contribute in proportion to 
his ability, he added in a note : " By ability must not be 
understood either capital or income, but that superlucration, 
as Davenant called it, which melts into consumption." 

In this view of taxation, so far as any member of the com- 
munity possesses Avealth in forms available for the future pro- 
duction of wealth, he is regarded as a trustee or guardian, in 
that respect and to that extent, of the j^ublic intei'ests. Just 
this is said by Young — taxes " can reach with propriety the 
expenses of his living only. If they touch any other jjart of 
his expenditure, they deprive him of tliose tools that are toorJc- 
ing the Itcsiness of the state.'''' 

469. Fallacy of this Doctrine. — But is it only eating, drink- 
ing, wearing, or some other of the modes of personal consump- 
tion, which constitutes such an individual appropriation of 
wealth as to make its use selfish, and thus bring it within the 
l^roper scope of taxation ? Suppose that a weak, sanguine, 
vain-glorious, or wilful owner of wealth api^lies it to what are 



TAX A TION. 445 

intended to be productive enterprises, but to such as are foolish, 
unjustified by the existing conditions of industry or trade, 
likely to result in loss and waste. Let us assume such an 
investment to have taken' place : a canal, for examj^le, for 
which there was no adequate occasion, to have been half con- 
structed. The theory of the equities of taxation which we are 
considering maintains that, not when this wealth was first 
created and became revenue, had the state a right to excise it 
for public uses, because it had not then been selfishly appro- 
priated to personal enjoyment ; not when it w^as saved out of 
revenue and became wealth, did the state acquire the right to 
take any portion of it for public uses, since it had not yet passed 
into consumption ; and that at no stage, from its creation to 
its final dissipation and disappearance as wealth, did the state 
obtain any claim upon any portion of it, because no individual 
had derived an exclusive benefit from it. And yet the com- 
munity derived no benefit from it. 

I do not see but that, if capital, or revenue in excess of per- 
sonal expenditure, is to be exemjDted from taxation, on the 
plea that it has not yet become the subject of individual and 
exclusive appropriation and is, therefore, presumably held and 
used in a way which primarily benefits society, the state has 
the right to enquire whether the use made or proposed to be 
made of wealth is such as will in fact benefit society, and bene- 
fit society, moreover, in the highest degree of which it is cap- 
able. 

The citizen, using this argument, says to the state, "You 
must not tax, excise, cut anything off, this wealth I hold, 
because I have not yet appropriated it exclusively to myself. 
Indeed, I am going to use it for the benefit of society." The 
state rejoins : " Yes, but of that we must satisfy ourselves. 
We must be the judge whether your use of your wealth will 
benefit society. Pay your taxes, and you can do with your 
wealth as you like. Claim exemption on the ground of pub- 
lic service, and you rightfully come under state supervision 
and control." 

The fallacy of the theory we are considering lies in the 
failure to recognize the fact that the selfish and exclusive 



446 POLITICAL ECONOMY. 

appropriation and enjoyment ofwealth are inseparable from its 
possession. The j^ride of ownership, the social distinction 
which attends great jDOSsessions, the power which wealth con- 
fers, are additional to the merely sensual enjoyment to be 
derived from personal exjaenditure. Would I resent the inter- 
ference of the government, or of my neighbors, in the manage- 
ment of my jDroperty, ujion the ground that it was not being 
used to the highest advantage of the community ? What is 
that resentment but the proof (and the degree of that resent- 
ment, the measure) of a i^ersonal appropriation, an exclusive 
appropriation, of that wealth ? My resentment would spring 
out of the deeply seated feeling that my management of my 
own property is my right ; and that he who should deprive me 
of it would take from me what is as truly mine as the right to 
eat, drink, wear, or otherwise consume and enjoy any portion 
of it ; that, short of absolute mental incapacity, it is my i^re- 
rogative to control my own estate, even though not to the 
highest advantage of the community or even of myself ; in 
other words, that I am not a trustee, but a proprietor. 

470. The Dangerous Nature of this Doctrine.— This doc- 
trine of the trusteeship of Caj)ital is not more irrational than it 
is socially dangerous. It is held by men who are fierce in 
denouncing graded taxation as confiscation ; yet it is, in its 
very essence, communistic. If the owner of wealth is but a 
trustee ; if " his tools are working the business of the state," 
then the real beneficiary may enter and dispossess the trustee 
if any substantial reason for dissatisfaction as to the manage- 
mens of the property exists ; the state may take the tools into 
its own hands and " work its business " for itself. 

The objections Avhich have been stated against the view that 
expenditure, exclusive, personal appropriation of wealth, fur- 
nishes the measure of the citizen's duty to contribute, are, it 
should be noted, additional to the objection previously made 
to the view that revenue furnishes such a measure. To admit 
expenditure as the true theoretical basis of taxation is to con- 
fess that, if the citizen is indolent and content with a scanty 
expenditure, the state has a smaller claim iipon him for con- 
tribution than it has upon another who is active, energetic, 



rAXA TION. 447 

and ambitious, and therefore earns and spends more 
freely. 

471. Faculty as the Basis of Taxation.— I reach, then, the 
conclusion that Faculty, the power of production, constitutes 
the only theoretically just basis of expenditure; that men are 
bound to serve the state in the degree in which they have the 
ability to serve themselves. 

I think we shall more clearly see Faculty to be the true 
natural basis of taxation if we contemplate a primitive com- 
munity, where occupations are few, industries simple, realized 
wealth at a minimum, the members of the society nearly on a 
level, and the wants of the state limited. Suppose, now, a 
work of general concern, perhaps of vital importance to the 
community, requires to be constructed : a dyke, for instance, 
against inundation, or a road, with occasional bridges, for 
communication with neighboring settlements. What would 
be the rule of contribution ? Why, that all able-bodied jser- 
sons should turn out and each man work according to his 
faculties, in the exact way in which he could be most useful. 
In regard to a community thus for the time engaged, we 
note two things : first, that no man would be held to be 
exempted because he took no interest in the work which had 
been decreed as of general public concern ; that he would not 
be allowed to escape contribution because he was willing to 
relinquish his share of the benefits to be derived, preferring 
to get a miserable subsistence for himself by hunting or fish- 
ing ; secondly, that, between those working, a higher order of 
faculties, greater muscular power, or superior skill would 
make no distinction as to the time for which the individuals 
of the community should severally remain at work. 

472. The Ideal Tax.— This is the ideal tax. It is the 
form of contribution to which all primitive communities 
instinctively resort. It is the tax which, but for purely prac- 
tical difficulties, would afford a perfectly satisfactory measure 
of the obligation of every citizen to contribute to the susten- 
tation and defence of the state. Any mode of taxation which 
departs in essence from this involves a greater or smaller 
sacrifice of the equities of contribution ; and any mode of tax- 



448 POLITICAL ECONOMY. 

ation whicli departs from this in form is almost certain to 
involve a greater or smaller departure in essence. 

And it deserves to be noted that the largest tax of modern 
times, even in the most highly organized societies of Europe, 
the obligation of com^^ulsory military service, is assessed and 
collected on precisely this principle. In nearly all the empires 
and kingdoms of Continental Eurojse the requirement of per- 
sonal service for an equal period presses alike on rich and poor, 
high and low. Exemptions are indeed allowed, but always on 
the theory that the persons exempted will in reality serve the 
state more to its advantage by remaining in their ordinary 
professional capacities. 

473. The Faculty Tax Impracticable.— But while the tax 
on Faculty is the ideal tax, it has usually been deemed im^sracti- 
cable as the sole tax in a highly complicated condition of 
industrial society. As occuiDations multiply and the forms of 
production become diversified, it is found that the state cannot 
to advantage call upon each member by turns to serve in per- 
son for a definite portion of each day or of the year. Hence 
modern statesmanship has invented taxes on exj^enditure, on 
revenues, on capital, not as theoretically just, but Avith a view 
to reduce the aggregate burden on the community, and to 
save production and trade from vexation and obstruction. 

Will the International when its day comes, when it controls, 
as it boasts it soon will do, the destinies of states, make good 
its vaunt of seeking political justice without fear or favor, by 
doing, in this matter of public contribution, what the conserva- 
tive or cowardly politicians of the existing order have not 
ventured to undertake, viz., to bring faculty universally under 
contribution, if not in the form of personal labor, then by tax- 
ation proportioned to natural abilities ? Will it dare to say 
that the state does not lose its claim on any man by reason of 
his indolence, his self-indulgence, his want of self-respect or 
social ambition ; that the fact that he is content to earn a 
miserable subsistence, and thus escapes wholly or mainly from 
taxes on revenue or expenditure, shall not be held to relieve 
liim from the duty of contributing to the public wants accord- 
ing to his natural powers equally with the most industrious 



TAXA TION. 449 

and thrifty of his fellows ? Will the International dare to lay 
the scourge on the backs of the lower elements of society, the 
gunning, fishing tribe, the shiftless squatters upon land, the 
loafers on the streets, the loungers in the bar-rooms, and drive 
them to work their allotted time for the state, if they will not 
work for themselves and those whom a mysterious providence 
has made dependent on them ? 

474. We recur to the Tax on Revenue. —The politicians of 
the existing order, as wo have seen, shrink from the effort in- 
volved in levying the public contributions entirely, or even 
chiefly, according to faculty. Next in -^ovaX, of political equity 
comes the tax on incomes, or the revenues of individuals. That 
tax, as it stands in contemplation of the writer on finance, is a 
tax on the I'evenues of all classes, with exception only of the 
amount requisite for the maintenance of the laborer and his 
family, after the simplest possible manner, in health and 
strength to labor. It is not a compensatory tax, constituting 
a part of a system in which realized wealth and various forms 
of expenditure are also brought under contribution, but the 
sole tax imposed by the state. 

475. Exemption of the Actual Necessaries of Life. — It 
has been said that from such an income tax the necessary cost 
of subsistence must be exempted. Mr, D. A. Wells has, in a 
recent paper, laid down two propositions: first, that "any in- 
come tax which permits of any exemption whatever is a grad- 
uated income tcx;" and secondly, that " a graduated income 
tax to the extent of its discrimination is an act of confisca- 
tion." But the exemption of a certain minimum annual reve- 
nue is a matter of sheer necessity, whether the state will or 
no. Economically speaking, it is not possible to tax an in- 
come of this class. A man in the receipt of such an income 
cannot contribute to the expenses of government. That income 
being only sufficient to individual necessities, no part of it can 
be applied to public uses. Should the state, with one hand, 
take anything from such a person as a taxpayer, it must, with 
the other, give it back to him as a pauper. 

Conceding the exemption, on purely economical grounds, of 
the amount required for the maintenance of the laborer's fam- 
29 



450 POLITICAL ECONOMY. 

ily, one of the most vital questions in finance arises immedi- 
ately thereupon; to wit, shall the excess above this minimum, 
shall the superfluity of revenue, which may be spent or saved 
at the will of the owner, be taxed at a uniform rate, or at 
rates rising with the increase of income ? 

476. The Question of Progressive Taxation. — The ques- 
tion of progressive or progressional taxation has always been 
one of great interest while the fiscal policy of states rested 
with the wealthy and well-to-do classes. It is certain to ac- 
quire vastly greater importance as political j^ower passes more 
and more into the hands of the class of small incomes. Upon the 
question of the equity of progressive taxation writers on finance 
are divided: one party holding that any recognition of this prin- 
ciple is sheer confiscation: the other admitting that progressive 
taxation may be carried to a certain point without injury either 
to the sense of political justice or to the instincts of industry 
and frugality, some even holding with J. B. Say that " taxa- 
tion cannot be equitable unless its ratio is progressive." Both 
parties agree that there is great danger that, under popular 
impulse, progressive taxation may be carried so far as not only 
to violate all the equities of contribution but seriously to shock 
the habits of acquiring and saving property. 

The system of progressive taxation prevailed at Athens. 
There were four Solonian classes of citizens, arranged accord- 
ing to wealth. Of these the first paid no taxes; the class next 
above them were entered on the tax-books at a sum equal to 
five times their income; the next class at ten times their in- 
come; the richest class at twelve times their income. This 
Solonian census was, in its main princijjles of graduation, 
retained after the constitutional changes of 378 b. c, though 
considerable modifications of the register were made. 

The principle of graduation, or progressive taxation, was a 
favorite one with the statesmen of the French Revolution. It 
was for a time adopted by the Convention in 1793. In con- 
sequence, perhaps, of the appetite thus created among the 
people for laying the burdens of government mainly on the 
rich, many of the later French writers on finance have been 
very strenuous in denouncing the principle. 



TAXA TION. 451 

Yet this system was approved, as we saw, by Say, and also 
by Montesquieu. In the personal tax, wrote the latter, "the 
unjust proportion would be that which should follow exactly 
the proportion of goods." Referring to the Solonian Cat- 
egories at Athens, he said: " The tax was just, though it was 
not proportional. If it did not follow the i^roportion of goods, 
it did follow the proportion of needs. It was judged that 
each had equal physical necessities, and that those necessities 
ought not to be taxed; that the useful came next, and that it 
ought to be taxed, but less than what was superfluous; and 
lastly, that the greatness of the tax on the superfluity should 
repress the superfluity." 

In 1848, at the Revolution, the idea of progressivity was 
revived. The provisional government in a decree, said : 
"Before the Revolution taxation was proportional ; then it 
was unjust. To be truly equitable, taxation must be pro- 
gressive." 

M. Joseph Garnier, editor of the Journal des JEconomistes, 
makes a distinction between progressive taxation, properly so 
called, and progressional taxation. It is, he says, against the 
first that all the objections are directed which we find in wri- 
ters who declare that progressive taxation is a species of con- 
fiscation, tending to the absorption of great fortunes by the 
state, to the levelling of conditions, to the destruction of prop- 
erty, to the discouragement of frugality and industry, to the 
emigration of capital, etc. There is, M. Garnier holds, a 
species of increasing taxation which is rational and discreet, 
to which he applies the term progressional, which is held within 
moderate limits, which is collected by virtue of a tariff of 
duties slowly progressive, and which, at the maximum, can- 
not pass beyond a definite portion of the income of the indi- 
vidual. Such would bo, he says, a graduated tax which 
should demand from a revenue of 500 francs, zero; from a 
revenue of 600 francs, a something; from a revenue of 700 
francs, that something and that which in arithmetic we call 
the ratio of increase; from a revenue of 800 francs, that some- 
thing and twice the ratio; from a revenue of 900 francs, that 
something and thrice the ratio; and so on, according to a scale 



452 



POLITICAL ECONOMY. 



of duties calculated from the lowest to the highest, never 
passing a moderate maximum. "Thus," he concludes, "tax- 
ation can be progressive without being confiscatory." 

In Prussia the tax on small incomes, known as the Klas- 
sensteiier, is levied on a scale of 13 degrees. 

In England the principle of progression has never been ad- 
mitted into the income tax further than is involved in the 
exemption of a certain minimum. How the subtraction of a 
constant amount from all incomes, and the taxation of the 
excess at a uniform rate, causes the rate on the total incomes 
to rise, from lowest to highest, will appear from the following 
table. 

477. The Effect of Exemptions.— If we suppose the con- 
stant amount exempted to be $1,000 and the rate of taxation 
on the excess to be ten per cent., incomes of different amounts 
will in effect be taxed as follows : 



Income. 


Income subject to 
Taxation. 


Amount of Tax. 


Kate of Taxation on 
Total Income. 


11500 


$ 500 


$ 50 


3.33+per cent. 


2000 


1000 


100 


5 


2500 


1500 


150 


6 " 


3000 


2000 


200 


6.66-f " 


3500 


2500 


250 


7.14+ " 


4000 


3000 


300 


7.5 


4500 


3500 


350 


7.77+ " 



But while the principle of jDrogressivity has never been ad- 
mitted into the income tax of England, it has been extensively 
applied to the so-called "Assessed Taxes;" that is, taxes on 
carriages, horses, servants, etc. 

478. Progressivity in Taxation Examined.— Four suc- 
cessive claims may be set up in behalf of the principle of 
Progressivity in Taxation. Two of these the economists gen- 
erally and the best writers on politics refuse to recognize. 
Tlie two remaining are open to argument, and, in their j^roper 
measure, seem to me valid. 

1. That the possession of large amounts of property, or 
tlic receipt of large incomes, signifies, in addition to economy 
and industry, an original endowment of exceptional talents, 



TAX J T/OJV. 453 

the happy possessor of which is bound to minister to those 
less gifted. 

2. That, in addition to economy and industry and to natu- 
ral ability, the possession of large amounts of property or the 
receipt of large incomes signifies good fortune. Fire, flood, 
wreck, accidents of character, accidents of circumstance, 
wholly beyond the power of man to determine, are powerful 
factors in placing the members of a community up or down 
on the scale of wealth. 

479. These Considerations Inadmissible.— Neither ot 
these considerations is admitted by the majority of economists 
or of political writers of eminence as relevant to the question 
of progressive taxation. It is peremptorily denied that it is 
the ofiice of the state to redress inequalities of natural gifts 
or of fortune. 

3. A third reason for progressivity, which, it seems to me, 
the economist and the political philosopher may legitimately 
recognize as of some force in this connection, is found in the 
undoubted fact that differences of property and income are due, 
in no small degree, to the failure of the state in its duty of 
protecting men against violence and fraud. 

The fact of such failure is unquestionable, and the effects 
are not of narrow range. One man is poor because at a certain 
time his house, his barn, his mill, his store, was burned down 
through the inefficiency of a semi-political fire department or 
by the malice of rogues whom the state, had it been sufficiently 
alive to its duties, would have hindered in their design, or 
would have impounded for some previous act of villainy. An- 
other man is poor because the state, having set up a gigantic 
corporation, a bank, a savings bank, a trust company, or a 
railroad, and having endowed it with extraordinary franchises 
and powers, has failed of its duty of superintendence and con- 
trol over the artificial person thus created, nnd has left it to 
prey upon the community. Another man is poor because the 
state, having undertaken to enforce the obligation of contracts 
and to secure justice between man and man, has failed to pro- 
tect him against fraudulent bankruptcies or clever rascalities of 
some one of the many species known to the commercial world. 



454 POLITICAL ECONOMY. 

Suppose no man became ricli, or acquired any part of his 
riches, through the faihire of the state to do that which it is 
bound to do ; suppose no man became poor from any such 
cause, is it to be questioned that the dividing line between 
those who have much and those who have little, between 
those who have something and those who have nothing, would 
be drawn very differently from what it is at present ? 

4. A fourth reason urged for progressive taxation is that 
diiferences of wealth are, in a measure, due to the acts of the 
state itself having a jDolitical purpose, as treaties of commerce, 
tariffs, currency legislation, embargoes, non-intercourse acts, 
wars. For example, it is of the very nature of war, or of a 
mere threat of war, to enrich certain classes of producers and 
exchangers and to impoverish others. A declaration of war 
by the United States against England would cause within a 
month an advance of ten, twenty, or fifty per cent, in certain 
lines of commodities, of which the average stock amounts to 
hundreds of millions of dollars. That all changes in the 
money systems of nations, whether by way of contraction or 
inflation, or of changes in the " standard," cause wholesale 
changes in the distribution of wealth, has passed beyond 
dispute. Tariffs and treaties of commerce are certain to act 
in the same direction, if not with equal effect. 

480. How far do these Considerations justify Progressive 
Taxation ? — In view of the last two considerations adduced, 
it is argued, not without show of reason, that where differences 
of wealth may fairly be presumed to be due in a measure to 
the state's own acts of omission or of commission, allowance 
therefor should be made in assessing the members of the com- 
munity for contribution to the public treasury. 

The question is a very nice one in theory, while in its prac- 
tical application it is beset with the gravest difficulty arising 
out of the instincts of spoliation which are deeply rooted in 
the human breast, an inheritance from ages of universal war- 
fare and robbery. The appetite for plundering the accumulated 
stock of wealth once aroused may become a formidable social 
and political evil. 

Were the highest human wisdom, with perfect disinterested- 



TAXA TION. 455- 

ness, to frame a scheme of contribution, I must believe that 
the progressive jDrinciple would in some degree be admitted ; 
but in what degree, and by what means, I am at a loss to 
suggest. 

That progressive taxation will be the demand of the Inter- 
national, as it was of the Revolutionists of 1793 and 1848, we 
already know. That progressive taxation will be urged in the 
spirit of spoliation and confiscation is most probable. The 
friends of the existing order will do well to be prepared to 
take their ground intelligently and maintain it with firmness 
and temper. 

481 . A Tas on Revenue Impracticable as the Sole Tax.— 

While, as the sole tax, the tax on revenue has been approved, 
on grounds of political justice, by many, perhaps most, writers 
on finance, it has, like the tax on faculty, generally been re- 
jected as impracticable in view of difficulties in assessment 
affecting incomes both high and low, more indeed the higher 
than the lower, and difficulties of collection affecting especially 
incomes of the lowest class. Few writers of reputation, have, 
without qualification, advocated such an income tax as both 
politically expedient and economically advantageous; and fewer 
statesmen have had the courage to propose it to the legisla- 
ture. 

Revenue, or income, having, then, been abandoned generally 
throughout modern society as the sole basis of taxation, and 
only in exceptional cases forming even an important feature 
of existing tax systems, Expenditure has been resorted to in- 
creasingly, in the past and present century, from considerations 
not so much of political equity as of political and fiscal expe- 
diency. By far the gi'eater portion of the revenue of the most 
advanced states is derived from taxes on consumption, as they 
are called, and every new demand of the treasury is met 
mainly from this source. 

Yet even now Realized Wealth is still employed in many 
communities as the sole basis of taxation, the measure of the 
obligation to contribute to the support of government. It was 
the preferred form of taxation throughout the American colo- 
nies, when the value of land was small and rents were seldom 



456 POLITICAL ECONOMY. 

paid by tenant to landlord. It is still the principal form of 
non-federal taxation in the United States, as the Grand Lists 
of townships, cities, and counties testify. 

482. Is a Tax on Capital Equitable? — How can a tax on 
realized wealth or capital be justified ? 

Let us take two cases: first, when income is not taxed; sec- 
ondly, when income is taxed. 

First, when income is not taxed. It is claimed that the 
result of realized wealth affords the best practical measure of 
income or of productive faculty. Now, that such a claim in 
behalf of a property-tax should be conceded, or even seriously 
considered, clearly requires two things: first, that the ne'er-do- 
weels shall be comparatively few in number; and secondly, 
that the disposition to save out of income for the accumulation 
of wealth shall be the general rule in the community. These 
requirements were met in the American colonies genei'ally, and 
especially in early New England. Barring the effects of in- 
temperance on the physical and moral nature, it was a rule 
with few exceptions that Americans in those times were dis- 
posed to labor, and to labor hard, that they might produce 
wealth; while so general was the desire of wealth, so stalwart 
the manhood of those times, so simple the habits of the people, 
so hio-h the social importance attributed to the possession of 
capital, that all the surplus above decent, Avholesome subsist- 
ence, after adequate provision for intellectual and religious 
culture, was likely to go towards accumulation. 

The mere statement of these elements of the case suffices to 
show the difiiculties besetting such a principle of taxation in 
its application to communities like those of the present day, 
with a less stringent public sentiment, with more extravagant 
modes of living, with a less general elevation of tastes and am- 
bitions, with greater proneness to self-indulgence, with vast 
classes that do not even try to save. In such a state of society, 
to tax only that part of revenue which is laid by for future 
consumption, or to assist in the further production of Avealth, 
is both pohtically unjust and economically vicious, exciting to 
extravagance and discouraging frugality. 

483. Secondly. But if a tax be imposed on income, how can a 



TAX A TION. 457 

2)roperty-tax be justified at all ? Have not the whole commu- 
nity been once taxed upon income, as affording a measure of 
the ability to contribute to the public service, and shall now a 
portion of the wealth so excised be again subject to deduction 
on no other ground than that it has been saved, presumably to 
assist in future production? 

Such a tax can only be defended, if at all, by the arguments - 
which we have already considered in advocacy of the progres- 
sive tax on incomes, viz., those drawn from the admitted de- 
linquency of the state itself. Just as it is argued that differ- 
ences in income are in a measure due not to the differences in 
the merit of individuals, but to the acts of the government, 
creating a presumption that the recipients of the larger in- 
comes have, as a class, suffered in a lower degree than the 
average from such delinquency of the state, or perhaps have 
even jDrofited by it: so it may be argued, not without show of 
reason, that in the ]3assage of income into capital, the failure 
of the state fully to discharge its duty of protecting wealth 
against fraud and violence, and the positive acts of the state 
for its own purposes, like currency legislation, tariffs, com- 
mercial treaties, embargoes, non intercourse acts, and wars, 
exercise a powerful influence in creating differences in accu- 
mulated wealth, irrespective of the merit of individuals, so 
that, as between those who have much and those who have 
little, between those who have something and those who have 
nothing, it may be assumed that the inferiority in one case, 
the deficiency in the other, are due, in a degree, to the 
acts of the state, either of omission or of commission. 

484. The Purely Economical Theory of Taxation. 

— Mr. McCulloch, tlie author of one of the few works of 
value in the English literature of Taxation, boldly pro- 
posed to abandon altogether the attempt to follow out the 
equities of contribution. "The distinguishing feature of the 
best tax," he said, " is not that it is most nearly proportioned 
to the means of individuals, but that it is most easily 
assessed and collected, and is, at the same time, most condu- 
cive to the public interests." 
The line of reasoning which leads up to Mr. McCulloch's 



458 POLITICAL ECONOMY. 

conclusions may be stated as follows : Government springs 
from injustice, and, in the constitution of things, must com- 
mit more or less injustice. It is of no use to attempt to pur- 
sue the equities of contribution ; they will elude you. It is 
admitted that it is impossible to distribute equally the benefits 
of government; why make the hopeless effort to apportion 
its burdens with absolute justice ? Get the best government 
you can; maintain it at the least expense consistently with 
efficiency; and collect the revenue for the service by the most 
convenient, simple and inexj)ensive means. By undertaking 
to effect an equitable apportionment of the burden, through 
complicated methods or by personal assessment, you are not 
only likely to fail; you are certain, at the best, to add to the 
aggregate cost of the service, and are in great danger of gen- 
erating new and distinct evils by disturbing economical rela- 
tions and obstructing the processes of production and ex- 
change. 

485. The Theory of the Repercussion or Diflfusion of 
Taxes. — No well-known writer following Mr. McCulloch 
has, to my knowledge, fully accepted his conclusion that the 
best tax is not that which is most nearly proportioned to the 
means of individuals, but that which is most easily assessed 
and collected, and, at the same time, most conducive to the 
public interests. But while writers on finance have insisted 
that the equities of contribution should govern in assessment, 
a belief in the so-called Repercussion, or diffusion, of taxes 
has led economists very generally to give their approval 
to the system of indirect taxation, the growth of which 
forms the most marked feature of the fiscal history of the 
present centuiy. 

Let the state, it is said, levy its contribution on such 
articles of general consum^Dtion as are most easily reached, or 
on such of the processes of production or exchange as lie 
most open to view, trusting to the operation of the laws of 
trade insensibly to distribute the burden over the whole body 
of the population. 

This plea raises the question of the Incidence, the ultimate 
incidence, of taxation. " I hold it to be true," said Lord Mans- 



TAX A TION. 459 

field in his speech on taxing the Colonies, " that a tax laid in 
any place is like a pebble falling into and making a circle in a 
lake, till one circle produces and gives motion to another,' and 
the whole circumference is agitated from the centre." 
" Taxes uniformly advanced on all like competing property," 
says Mr. Wells, " will always tend to equate themselves, and 
will never be a special burden to those who originally made 
the advances to the government," 

486,. How do Taxes Tend to Diffusion ?— This, which 
may be called the Diffusion-theory of taxation, rests upon the 
assumption of perfect competition. It is true, to the full 
extent, only under conditions which secure the complete 
mobility of all economical agents.* As far as any portion of 
the community are impeded in their resort to their best mar- 
ket by ignorance, poverty, fear, superstition, misapprehension, 
inertia, just so far is it possible that the burden of taxation may 
rest where it first falls. It requires, as Prof. Rogers has said, an 
effort on the part of the person who is assessed to shift the 
burden on to the shoulders of others. Not only is that effort 
made with varying degrees of ease or difiiculty ; but the resist- 
ance offered may be of any degree of effectiveness: powerful, 
intelligent, tenacious, or Aveak, ignorant, spasmodic. The 
result of the struggle thus provoked will depend on the rela- 
tive strength of the two parties; and as the two parties are 
never precisely the same in the case of two taxes, or two forms 
of the same tax, it must make a difference upon what subjects 
duties are laid, what is the severity of the imposition, and at 
what stage of production or exchange the contribution is 
exacted. It is not, it never can be, a matter of indifference 
when, where, and how taxes are imposed. " The ability to 
evade taxation," writes M. Say, " is infinitely varied, accord- 
ing to the form of assessment and the position of each indi- 
vidual in the social system. Nay, more, it varies at different 
times. There are few things so unsteady and fluctuating as 
the ratio of the j)i'essure of taxation upon each class, by turns, 
in the community." 

* See pars. 304-8, 



460 POLITICAL ECONOMY. 

487. M. Say's Views.— It has al-«'ays seemed to me sti-ange 
that J. B. Say should be cited, as he so often is, as an author- 
ity on the side of the diffusion-theory of taxation. Not only in 
the paragraph from which I have quoted does he recognize the 
vital importance of the right "seating" of taxes; but in his 
references to the essay of Canard, which had been crowned by 
the Academy, he is even more pronounced. Canard had said 
that it is of little importance whether a tax press upon one 
branch of revenue or another, provided it be of long standing, 
because every tax in the end affects every class of revenue pro- 
portionally, as bleeding in the arm reduces the circulating blood 
in every portion of the human frame. To this M. Say rejoins 
that the object taken for comparison has no analogy with 
taxation. The wealth of society is not a fluid, tending con- 
tinually to a level. It is, the rather, an organism like a tree 
or a man, no part of which can be lopped off without perman- 
ently disfiguring and crippling the Avhole. 

488. M. deParieu's Views.— M. de Parieu has given a chajD- 
ter of his great work to the Incidence of Taxation. In respect to 
what he calls taxes levied upon the conditions of every human 
existence, he reaches the result that they have effects very 
obscure, and in a still greater degree subject to dispute. 
Where taxes are levied in cities upon the necessaries of life, 
he finds no considerable danger of evil effects, since there is 
a constant intercommunication between the laborers of towns 
and those of rural districts, and migration will soon restore 
the equilibrium after the disturbance created by the new im- 
post. It is otherwise when a new tax is imposed throughout 
the whole extent of a country. The emigration of laborers to 
foreign parts is only accomplished against a certain resistance, 
arising out of their habitudes and affections. It is always, 
moreover, accomplished at a definite loss and an indefinite risk. 
To throw taxes on consumption back upon the capitalist or 
the employer becomes, in M, de Parieu's judgment, a task very 
difticnlt and often wholly imjiracticable. 

489. Conclusion.— I reach the conclusion that, in a condition 
of imperfect coin])etition, Ave liaA^e no assurance that indirect 
taxes Avill be diff'used equably over the whole community 



PROTECTION VS. FREEDOM OF PRODUCTION. 461 

leaving each class and each individual in the same relative con- 
dition as before the imposition. Something less, it may be 
much less, than a proportional contribution must result from 
the differing strength and opportunities of the several classes 
and individuals. The legislator cannot, then, adopt the com- 
fortable doctrine of the indifference of the place and the per- 
son where and on whom the burden shall be laid. His respon- 
sibility abides for the ultimate effects of the taxes he imposes. 
Whether with reference to the equities of contribution or to 
the general interests of trade and production, he is bound care- 
fully to consider the nature and probable tendencies of every 
projected impost. 

xm. 

PROTECTIOlSr VS. FREEDOM OP PRODUCTIOlSr. 

490. The Doctrine of Laissez Faire.— The question of 
Protection, as against Freedom of Production — not, as it is 
commonly stated, against Freedom of Trade — is rarely dis- 
cussed, on both sides, upon purely economical principles ; per- 
haps has never been, in an actual instance, decided without 
the intermixture of political or social considerations. 

The arguments of those who have favored the policy of so 
far limiting the territorial division of labor (see par. 71), as to 
constitute industrial entities corresponding to existing political 
entities (which I take to be the real intent of what is called 
Protection) have been of every degree of vagueness ; but it 
seems to me that the confusion of the public mind need not 
have existed, at least to so great an extent, had not the pro- 
fessional economists taken what I cannot help regarding as an 
unjustifiably lofty attitude on this subject, practically 
refusing to argue the question at all, as one of national ex- 
pediency, contenting themselves with occupying the high 
ground of Laissez Faire.* 

Now the doctrine of laissez f aire, although established by 
the English economists to their own satisfaction, as containing 

* Bee par. 333. 



463 POLITICAL ECONOMY. 

a principle of universal application, and tlius deemed by them 
a conclusive answer to all arguments specially directed to 
justify restrictions upon international trade, has never been 
accepted, in the fulness of significance by them given it 
throughout any wide constituency, not even by any large 
projDortion of the educated classes, not even generally by 
publicists, or statesmen, or men of affairs. 

491. Opposition of the Economists to Factory Legisla- 
tion. — Thus, when factory legislation was first proposed in 
England,* nearly the whole body of professional economists 
opposed any interference with the freedom of contract re- 
specting labor ; they asserted the entire competence of the 
laboring classes to protect their own interests ; they declared 
that interference on behalf of the laboring classes could only 
be mischievous, in the long run, to the laborers themselves ; 
they relocated their maxim laissez-faire, laissez-aller, just as 
confidently as they do when " protective" duties are pro- 
posed ; they put themselves on record in the most formal 
manner against all measures of restriction upon factory and 
workshop labor ; they cast in their lot with the opjDosition to 
this class of legislation, and staked the reputation and in- 
fluence of political economy upon their being right in this 
matter. 

Had they won upon that issue ; had it been determined 
tln-ough long experience to the general conviction of the pub- 
lic mind, that these men w^ere wiser than those who proposed 
to extend the authority of the state over the contract for 
labor ; had the results of the factory acts been proven delete- 
rious to the interests of the working classes themselves, or 
even to the industrial power of the kingdom, it would have 
been a rare triumph for the economists, and their influence 
Avould have been immensely strengthened. But it did not 
turn out so. Altboiigh in the first instance, that of the act of 
1802, Sir Robert Peel, the elder, had been so solicitous not to 
violate the principle of the self-sufliciency of labor that he 
made the bill apply only to apprentices, the wards of the 

* Sec pars. 398-400. 



PROTECTION VS. FREEDOM OF PRODUCTION. 463 

state, the political rightfulness and the economical expediency 
of regulating the contract for labor* so grew upon the public 
mincil of England, that act after act extended the supervision 
of the state over factory and workshop, until the policy of re- 
striction had vindicated itself to the complete satisfaction of 
the working classes, even, in the main, of the master class, 
themselves, and of the statesmen of the kingdom and pub- 
licists almost without exception. 

Yet not wholly without exception ; one class remained true 
to their opinions of 1802. When, after forty-two years of 
experience of factory legislation, the important act of 1844 
was introduced, the economists of England, both in and out 
of Parliament, avowed their undiminished hostility to the 
principle of restriction, upon the familiar grounds of laissez 
/aire. Even thirty years later, when a measure was intro- 
duced into Pai'liament for the protection of female factory 
operatives against gross physiological abuses, there were 
still a few faithful souls who avowed their unswerving 
opposition to any qualification of the doctrine of the econ- 
omical self-sufficiency of labor. They would accept the bill 
on social or political grounds, or as a measure of police, 
but they declared that they would never acknowledge that 
interference with the freedom of contract could be econ- 
omically beneficial. And those gentlemen were the econo- 
mists ^:>ar excellence of Parliament. 

492. Freedom the Hule: Restraint the Exception.— 

Now, in view of the facts recited, can we deem it s<:range 

that this same doctrine f has not been accepted by all intelli- 

* I have ah'eaily quoted (par. 229) the remark of the Duke of Argyle, 
"During the present century two great discoveries have been made 
in the science of government ; the one is the immense advantage of 
abolishing restrictions upon trade ; the other is the absolute necessity of 
imposing restrictions upon labor, " 

f I have also (par. 322) quoted the two most eminent English econo- 
mists since Mill; viz., Prof. Stanley Jevous and Prof. JohnE. Cairnes, 
ill renunciation of Laissez Faire as a principle of universal application. 
This additional paragraph from Prof. Cairnes' Introductory Lecture in 
University College, 1870, is so pertinent to the discussion in the text that 
I cannot refrain from-giving it at length; 



464 POLITICAL ECOXOMY. 

gent men as conclusive of the questions involved in the system 
denominated by its advocates " national economy ?" 

The fact that in the controversy over the factory acts the 
economists of the laissez-faire school are proved to have been in 
the vo-ong, does not show, or go to show, that they are wrong 
in their opposition to laws in restraint of international com- 
merce. It does not even create a presumption to that effect. 

Although the necessity of making exceptions to the rule of 
freedom of individual action has been established as com- 
pletely in respect to industry as in respect to politics, freedom 
of action is yet so far the condition of health and power and 
growth in the field alike of politics and of industry, that those 
who propose to make exceptions in either are bound to show 
cause for every such exception; a heavy burden of proof rests 
upon them; their case is to be made, and made against a pow- 
erful ^presumption in favor of liberty, as that condition which 
has the promise not only that of which now is, but, in a higher 
degree, of that which is to come. There is not and there can 
never be any positive virtue in restraint; its only office for 
good is to i^revent waste and save the misdii-ection of energy. 
There is no life in it and no force can come out of it. That 
which is called "protection" operates only by restraint; it has 
and can have neither creative power nor healing efficacy. All 
the energy that is to produce wealth exists before it and with- 

" Now I beg you to remark tlie strange assumptions that underlie this 
reasoning. Human interests are naturally harmonious; therefore we 
have oul}^ to leave people free and social harmony must result; as if it 
were an obvious thing that people knew their interests in the sense in 
which they coincide with the interests of others, and that, knowing 
them, they must follow them; as if there were no such things in the 
workl as passion, prejudice, custom, ei'pi-it de corps, class interest, to draw 
people aside from the pursuit of their interests in the largest and highest 
sense. Here is a fatal flaw on the very threshold of Bastiat's argument ; 
and it is a flaw which no follower of Bastiat has repaired— which, for 
my part, I believe to be irreparable. Nothing is easier than to show that 
people follow their interest, in the sense in which the}- understand their 
interest. But between this and following their interest in the- sense in 
which it is coincident with that of other people, a chasm yawns. That 
cJMsm in Hie argument of t?ie laissez-faire scJwol has never been bridged. 
The advocates of tJie doctrine shut their eyes and leap our it." 



PROTECTION VS. FREEDOM OF PRODUCTION. 465 

out respect to it; and just to the extent to wliich protection ope- 
rates at all, it operates by impairing that energy, and reducing 
the sum of wealth that might be produced if protection did 
not exist. 

I say, that might be produced, not that loould be produced. 
The latter point may fairly be disj)uted between the free- 
trader, who should rather be called the free-23roducer, and the 
advocate of the system of restricted production. The channel 
of the river adds nothing to the force with which the water 
within its banks tends to its level. On the contrary, that force 
is reduced by the friction between the flowing water and the 
sides of the channel. Yet it is water confined in rivers, and 
not water spreading widely over the fields, which yields power 
to manufacturing industry. The force of the steam at the 
piston-head is less than the force of the steam in the boiler, 
less by all that is necessary to conduct it thither from the 
boiler; yet it is the force of the steam at the piston-head, and 
not where it is generated, whicli moves the engine. 

493. What the Protectionist Has to Prove. — If the pro- 
tectionist can show that restraints imposed by law upon the 
industrial action of his countrymen, or the men of any country 
he chooses to take for the purposes of the debate, have the 
effect, not, indeed, to generate productive f orcc,f or that is impos- 
sible and it would be absurd to allege it, but to direct the pro- 
ductive force generated by human wants setting in motion 
human labor to act upon the natural agents of production, 
with a. better actual result* than under the rule of freedom, he 

* Much as I admire the pithiness and vigor of Professor Sumner's argu- 
ment before the Tariff Commission, in Pliiladelphia, recently, I cannot 
but thiulc tliat he unduly disparages the losses to production which 
occur under the regime of free-exchange. I have in anotlier place (pars. 
85-92, and again 209 to 225) adduced considerations which seem to me 
lo justify a very serious view of the extent and importance of these 
losses. Let the protectionist, if he can, show good grounds for believing 
that under the system he proposes there would be abetter outcome. In 
doing so he must in the first place meet and answer the objections, so 
well stated by Prof. Sumner in liis work, Protection in the United 
States, arising from the incompetencj'' of the average legislator to deal 
with the delicate and sensitive organization of industry, and from tlic 
30 



466 POLITICAL ECONOMY. 

will make his case. But this is to be proved, not taken for 
granted; and it is to be proved only by sound and serious 
argument, not by strenuous assertion and senseless clamor. 

494. Why Should Industrial Correspond to Political En- 
tities? — In proceeding to establish the importance of checking 
the extension of the territorial division of labor at the boundary 
lines of nationalities, the protectionist writers have been ser- 
iously embarrassed from the lack of reasons to give why indus- 
trial entities ought to correspond to political entities. Had they 
undertaken to show that every million or five millions of jjeo- 
ple might advantageously be organized into a separate indus- 
trial entity, having either no commercial intercourse at all 
with communities on the outside, or a commercial intercourse 
much reduced and retarded ; or had the protectionist Avriters 
undertaken to show that every ten or twenty square degrees 
upon the earth's surface, whatever the number of inhabitants, 
should become an industrial entity, trade within the limiting 
parallels and meridians being unrestrained and even encour- 
aged, while trade across those lines should be deemed in a 
higher or lower degree mischievous, and, as far as might be, 
discoui-aged or prohibited ; or had these writers undertaken 
to show that every important river basin or drainage system 
should be constituted an industrial entity, in as great a degree 
as possible independent of others, they would have had a much 
less difficult task. A good deal might be said upon the 
theme that the world-wide extension of the principle of the 
division of labor needs to be ci-ossed and checked by artificial 
obstructions to prevent certain economical and social evils. 
AYe have shown (par. 209) that grave industrial mischiefs may 
originate in this principle, through which producer and con- 
sumer are set apart, often by a vast distance, sometimes by 
half the circumference of the globe ; that misunderstandings 
may arise between producer and consumer which will result \\\ 
a smaller production of w^lth, a lower satisfaction of human 
wants, and that these misunderstandings are sometimes aggra- 

tendency to intrigue, "log-rolling" and sectional strife inevitably 
attendant on the legislative control of vast moneyed interests: PTowill 
then be in a position to meet the further objection noted in the lext. 



PROTECTION VS. FREEDOM OF PRODUCTION. 467 

vated by suspicion or panic with the most deplorable conse- 
quences. The fact is incontestable, and it would be easy to 
exaggerate its real importance without seeming to do so. 
Everj^ great gain is accomplished at the expense of some loss, 
smaller or larger ; and by judicious rhetorical treatment the 
balance of advantages may often be made to appear upon the 
other side. It is easy to imagine a pretty argument, a very 
pretty argument indeed, constructed in support of the jjropo- 
sition that the territorial division of labor should be stopped 
at certain natural or artificial lines. To be sure, the argu- 
ment would have much the sound of the ars^ument against rail- 
ways and gas and civilization and modern conveniences gen- 
erally ; but we know that that argument may be made very 
bright and entertaining and almost convincing, by a clever 
essayist. 

But when the attempt is to prove that the principle of the 
division of labor should be allowed to extend itself freely 
within the bounds of nationality but not beyond them, addi- 
tional difficulties of a grave character are encountered at the 
outset, in the great and, from the economical point of view, 
altogether unaccountable irregularity and whimsicalness with 
which the surface of the earth is divided among independent 
sovereignties. One nation comprises two millions of inhabi- 
tants, like Denmark, Greece or Chili ; another ten, like Mexico, 
Brazil or Siam ; another thirt}^, like Italy or Jajsan ; another 
fifty, like the United States ; another eighty, like Russia ; 
another three hundred and fifty, like China. The territory 
occupied by one nation crosses and includes two, three or five 
great river systems ; in other cases, one river system embraces 
the territory of two, three or five nations. A stream which a 
boy can wade may form the dividing line of two independent 
States ; a third State may collect its revenues across the Atlan- 
tic and the Pacific oceans, and its magistracy send their war- 
rants alike to Hudson's Bay and into the South Sea. One 
people may stretch from North, to South across sixty degrees 
of latitude ; another from East to West, through half the daily 
journey of the sun. One country may be occupied by a popu- 
lation as homogeneous as the inhabitants of some old city ; 



468 POLITICAL ECONOMY. 

wbile under the same flag, and subject to the same laws may 
live the representatives of nearly every race of men known to 
ethnology, speaking two hundred languages and three thou- 
sand dialects ; some dressed in the height of the latest Paris 
fashion, others tattooed upon the naked skin; some using the 
telephone, others the assegai ; some finding their choicest 
amusement in the Wagnerian opera, others in the war dance 
that opens the feast of human flesh. 

495. The United States as an Instance. — It will readily 
appear that the protectionist writers have a diflicult task in 
establishing the necessity of drawing the lines of industrial 
circumvallation along the boundaries of empire. 

Take the United States for example. Here are thirty-eight 
States trading among themselves with the utmost activity, 
the exchange of commodities and services being as ffee as 
the movements of the air ; and in this freedom all good citizens 
rejoice.* But this condition of things is made, by the doctrine 
under examination, to be dependent entirely upon the politi- 
cal relations of these States. Were they under different gov- 
ernments, the exchange of commodities and services Avhich 
now promotes the general wealth and the general welfare 
would be fraught with mischief and possible ruin. But for 
the treaty of 1783, trade between Illinois and Wisconsin, on 
the east bank of the Mississippi, and Missouri and Iowa, on 

^•' "If it be asserted that States whuiii pursue different industries cau- 
uot afford to trade freely with cue another, here we have tlicm, New 
York and Pennsylvania, Massachusetts and Minnesota, Maine and 
Louisiana. If it be asserted that States with like industries cannot afford 
to trade freely with one another, here wc have them — Indiana and 
Illinois, Iowa and Minnesota, Massachusetts and Rhode Island, Alabama 
and Mississippi. If it be said that small States cannot afford to trade freely 
with .ii,reat Empires, here are New York and Connecticut, Pennsylvania 
and Delaware. "Why do not the great States suck the life out of the 
small ones ? If it be said that new States, with little c;ipila\ and ou the 
first stage of culture, cannot afford to exchange fi'ecly with old States 
having large capital and advanced social organization, here arc New York 
and Oregon, Massachusetts and Idaho. How can any Territories ever 
^row into Slates under the pressure ? If it be said that a State which 
relies on one industry cannot afford to exchange freely with one which 
has a diversified industry, here are Pennsylvania and Colorado, Cali- 



PROTECTION VS. FREEDOM OF PRODUCTION. 469 

the west bank, would be prejudicial to some or all of the 
parties engaged. But for tbe treaty of 1819, the commercial 
dealings of Florida and Georgia, now a subject of congratula- 
tion so far as they extend, would be the proper object of 
dread and repugnance to one or both of these States. But for 
the Mexican war, the exchange of products between California 
and New York would properly be prohibited, on one side or 
both, or, if not jsrohibited, placed under onerous restric- 
tions. 

To-day free communication between the United States and 
Mexico is only advocated by " theorists," who fail to appre- 
ciate the importance of protecting American labor against the 
pauperized labor of the indolent Spanish American, i.e., pro- 
tecting the strong against the weak. Were Mexico annexed, 
the abolition of all restraints upon intercourse would be the 
first duty of Congress. A reciprocity treaty with Canada as 
a part of the British dominions is esteemed injurious to Maine, 
Vermont and .Massachusetts; but free trade with ISTova Scotia, 
Quebec and Ontario as States of the Union would be a wel- 
come boon to New England. 

It is, of course, possible that some new analysis of the con- 
ditions of jDroduction may yet disclose the law which thus 
makes trade within the limits of sovereignty beneficial, and 
trade across the boundaries of sejDarate States deleterious to 

fornia and Nevada, any of the cotton States and any of the Northeastern 
States. 

"No such strong illustrations are furnished by any States in the world 
which are sovereign and independent of each other. The Constitution of 
the Union enforces absolute freedom of exchange, and each State pays its 
own taxes and supports its own government. The traveler rarely knows 
when he passes from one State to another. As to what he buys or where 
he buys, what he sells or where he sells, it would be considered an 
uuwarranta))le impertinence for any public official to enquire. Yet no 
man has ever been known, so far as we are aware, to complain of this as 
a hardship, or as imposing a loss upon him, and no such complaint has 
arisen from any State as a State, nor has any one been heard to claim 
that here was an actual loss which must be endured for the sake of the 
great benefits which come from Union. On the contrary, it is uni- 
versally and tacitly agreed that this is one of the great benefits of the 
Union." — W, G. Sumner, " Protection in tJie United States." 



470 POLITICAL ECONOMY. 

one or both parties; but thus far assertion coupled with vituper- 
ation has taken the place of the analysis required. 

496. Protecting the Strong against the Weak.— I have 
spoken of the alleged necessity of protecting the strong against 
the weak. In the old world, the argument for jjrotection is 
based on the innjortance of protecting the industrially weak 
against the industrially strong; and I am not certain that 
something might not be said for this.* Russia strives to pro- 
tect her labor against the far better paid labor of Germany; 
Germany, in turn, strives to protect her labor against the 
vastly better paid labor of England. Among all fully settled 
countries, the rule, without exception so far as I am aware, is 
that that country in which the higher wages are paid offers its 
products at lower j^rices (see par. 292) than the competing 
products of countries where the lower wages are paid. 

' In the United States, however, the argument for protection 
has based itself on the assumed necessity of protecting 
the strong against the weak. In Australia and Canada it is the 
same. It is alleged to be essential to the maintenance of high 
wages prevailing in these countries, that the products of the 
" pauper labor of Europe " shall not be sold freely in their 
markets. 

Why is it that the plea of those who desire to check the 
extension of the division of labor on the lines of nationality, 
suddenly changes from the necessity of protecting the weak 
against the strong to the necessity of j^i-otecting the strong 
against the weak, as Ave pass from old and fully settled coun- 
tries, to countries but recently, and perhaps still but partially, 
occupied and cultivated ? 

497. Why Wages are High in New Countries.— The 
explanation is found in the fact that the populations of Avhat 
wo call " new countries," that is, countries where an inadequate 
population is applying progressively to fresh fields advanced 
metliods and machinery, possess an immense advantage in the 
conditions of living over the populations of " old countries," 
where the land has long been fully occupied, where the capa- 
bilities of the soil, even on fields of small natural productive- 

* For the effects of unequal competition see pars. 306-9, also 395. 



PROTECTION VS. FREEDOM OF PRODUCTION: 471 

ness, are heavily taxed to furnish subsistence to its inhabitants, 
and where systematic, continuous manuring has to be practised 
in order to keep the land in condition. 

The enormous profit of cultivating a virgin soil without the 
need of artificial fertilization, and the abundance of food and 
other necessaries of life enjoyed by the agricultural class have 
tended continually to disparage mechanical industries alike in 
the eyes of the American capitalist looking to the most remun- 
erative investment of his savings, and of the American laborer 
seeking the avocation which should promise the most liberal 
and constant support for himself and his family. 

498. The Competition of the Farm with the Shop.— 
It has been the competition of the farm with the shop which 
has, from the first, most effectually retarded the growth of man- 
ufactures in the United States. A population which is jorivi- 
leged to live upon a virgin soil, cultivating only the choicest 
fields and cropping these through a succession of years without 
returning anything to the land, can live in plenty, if not fare 
sumptuously every day. If that population possess the added 
advantage of great skill in the use of tools and great adroit- 
ness in meeting the large and the little exigencies of the occu- 
pation and cultivation of the soil, the fruits of agriculture will 
still further be greatly increased. The dietary of an American 
farmer* of the plainest sort, cultivating his own land with the 
aid of his growing sons, would amaze a peasant from any por- 
tion of Europe. An abundance of nutritious food is and has 
been, ever since the revolutionary period, the sure condition of 
the life of the agriculturist in the United States. It was not 
with our fathers, even in New England, a struggle for the 
necessaries of life, but for social decencies and what, in any 
old country, would have been called luxuries. The pioneers of 
Western New York, of Ohio, and of Wisconsin, never knew, 
at least after the first few years, what it was to lack food, or 
to be obliged to pinch or scrimp in the use of it, 

Now, the mode of living on the part of the agricultural 

* I use the word in its usual Aiuericaa acceptation, signifying tlie 
occupier, who is, also, presumably, the owuer, of a separate estate, be the 
same large or small. 



472 POLITICAL ECONOMY. 

population has necessarily set a minimum standard of wages 
for mechanical labor. With an abundance of cheap land, with 
a population facile to the last degree in making change of 
avocation and of residence, very few native born Americans, 
and comparatively few immigi-auts are likely to be drawn into 
factories and shops on terms which imply a meaner subsist- 
ence than that secured in the cultivation of the soil, 

499. The Hand Trades. — There are certain classes of 
mechanical pursuits, however, which, by their nature, secure 
to those who follow them a minimum remuneration fully up 
to the standard of the agricultural wages of the region. 
Such, for instance, are the trades of carpenter, blacksmith and 
mason, in which the work is of a kind which can only be done 
upon the spot. The house cannot be built abroad and im- 
jjorted for the farmer's use; the wagon must be mended near 
the place where it broke down; the horse must be shod, the 
tools sharpened, by the artisans of the neighborhood. If, then, 
the farmer will have such services performed, he must admit 
those who perform them to share his own abundance; he 
must pay wages or prices which will attract men, and those, 
by necessity, men exceptionally intelligent and skillful, into 
those trades. Hence we find the mason, the plumber, the 
carpenter, the house painter, the cobbler, in every jjart of the 
United States, receiving wages which bear no relation what- 
ever to the wages paid for the same class of services in 
other countries, but Avhich stand in a very exact relation to 
the rewards of agricultural labor here. 

Nor has it ever been found necessary to encourage or stimu- 
late these trades for the good of the country. What statesman 
ever introduced into Congress a bill intended to increase the 
number of carpenters or blacksmiths, or to enhance their 
wages ? If the word manufactures signified that which its ety- 
mology implies, a making by the hand, the United States would 
be to-day not the second but the first manufacturing nation 
of the world. 

500. Personal and Professional Services.— But, again, 
there are certain classes of services, of a personal or profes- 
sional nature, which have also secured for those rendering them 



PROTECTION VS. FREEDOM OF PRODUCTION. 473 

a participation in the abundance enjoyed by the tillers of the 
soil in the same region. The remuneration received by the 
members of these classes, whether called the wages of domes- 
tic servants, or the fees of physicians and lawyers, or the salaries 
of schoolmasters and clergymen, or the profits of retail trade^, 
has been out of all relation to the remuneration of similar 
services in other countries, and has amounted to just what I 
have termed it, a participation in the abundance enjoyed hy 
the agricultural population. Since these services could only 
be performed upon the spot, the agriculturists have been 
obliged, if they would have the services rendered, to pay for 
them, out of the large surplus of their own produce, at least 
enough to make these professions and avocations equally 
desirable with their own, uncertainty of result, loss of time in 
preparation, exj)ense of education and training, healthfulness 
and agreeableness of work, etc., being taken into account; and 
since the agricultural classes have desired that these services 
should be performed, and have been willing to pay for them 
on the scale indicated, there has never been any call for Con- 
gressional action to secure the requisite number of lawyers, 
physicians, clergymen, schoolmasters, domestic servants or 
retail tradesmen. 

501. The Factory Industries.— But now we note that there 
are still other important classes of services to be rendered, 
respecting which the rule changes. The remuneration of the 
persons rendering these services no longer has reference to 
the abundance of agricultural production in the several sec- 
tions of the United States ; is no longer irresjaective of the 
remuneration of such similar classes elsewhere. These per- 
sons are not, necessarily, admitted to a participation in the 
fruits of American agriculture. 

The services referred to are such as can be performed with- 
out respect to the location of the consumer of the product. 
They are nearly identical with what we call, in the technical 
sense of the term, manufactures. 

Whenever the American farmer wants a pane of glass set, or 
a pair of boots mended, or a horse shod, he must pay some 
one his neighbor, enough for doing the job to keep him in his 



474 POLITICAL ECONOMY. 

trade and to keep him out of agriculture, in the face of the 
great advantages of tilling the soil in New York, or Ohio or 
Dakota, or wherever else the farmer in question may live; 
but how much he shall pay the man who makes the pane of 
glass, or the pair of boots, or the set of horseshoes, wnll depend 
upon the advantages of tilling the soil, not where he himself 
lives, but where the maker of horseshoes, of boots, or of glass 
may live. 

If he will have the work done he must pay some one, some- 
where, enough to kee]3 him in his trade and out of agriculture; 
but not necessarily out of ISTew York agriculture, or Ohio 
agriculture, or Dakota agriculture; but, perhaps, out of Eng- 
lish agriculture, or French agriculture, or Norwegian agricul- 
ture, such as that may be, with the advantages, no less and no 
more, there enjoyed by the cultivators of the soil, under the 
requirement of constant fertilization, deep ploughing and 
thorough drainage, and subject to that stringent necessity 
which economists exjjress by the term, " the law of Diminish- 
ing Returns." 

Now, to offset and overcome the inducements to engage in 
agriculture, even in Merry England, is a different thing, a very 
different thing, from keeping a man in his trade and out of 
agriculture in the United States. 

I have already quoted Prof. Fawcett as saying that it is impos- 
sible for the agricultural laborer in the West of England to 
eat meat more than once a week. The American who works 
upon the land eats meat twice a day, and freely at that. 

The American agriculturist, having large quantities of 
grain and meat, of cotton and tobacco, left on his hands, after 
providing ample subsistence for his family, and even after 
hiring the carpenter, mason and blacksmith, the schoolmas- 
ter, lawyer and doctor, for as much time as he requires 
their respective services, and still f urtlier, after putting a good 
deal into farm implements and increase of stock, is desirous of 
obtaining with the remainder sundry articles more or less 
necessary to health, comfort and decency. To him, consulting 
his personal interests, which is all the average man can be 
expected to do in a bargain, it makes no difference whether the 



PROTECTION VS. FREEDOM OF PRODUCTION. 475 

articles lie requires are made on one side of the Atlantic or on 
the other; but it makes a great difference to him what he is 
obliged to pay for them; how much of his surplus grain and 
meat, tobacco and cotton must go to secure a certain definite 
satisfaction of his urgent and oft-recurring wants. If he 
must needs pay some one to stay out of American agriculture 
and do this work, his surplus will not go so far as if he were 
allowed to pay some one to stay out of English agriculture to 
do it.* 

502. What the State Can Do. — But here the State enters 
and declares that it is socially or politically necessary that 
these articles, these nails, these horseshoes, this cotton or 
woolen cloth, or what not, shall be made on this side of the 
Atlantic, and not on the other. That necessity the agricul- 
turist, as consumer, cannot be expected to feel; he does not 
care where the things were made; he only wants them to use. 
He does not care who makes them; he does not even care 
whether they are made at all; they would answer his purpose 
just as well were they the gratuitous gifts of nature, sponta- 
neous fruits of the soil, or the sea, or the sky. Whatever his 
own economical theories may be, ho will, as purchaser, every 
time select the cheapest article which will precisely answer 
his need. He will not, of his own motion, pay more for an 
article because it is made on his side of the Atlantic than he 
could get an equally good article for, bearing the brand of 
Sheifield or Birmingham or Manchester. But if the State 
says he must, he must; and consequently the American maker 
of this article is by force of law admitted to a participation in 
the abundance enjoyed by the American agricultural class. 
The tiller of the soil is now compelled, by the ordinance of the 
State, to share his bread and meat with the maker of nails or 
of horseshoes, of cotton or of woolen cloth, just as he was 

* This is consistent with what was said in Part II. concerning the 
causes of industrial efficiency. No small part of the expenditures of the 
American agriculturist is upon objects which have, not a physiological, 
but a social ov moral utility, and hcuce which bring not a phj^siological 
recompense, in greater laboring power, but asocial and moral recompense 
in the form of a higher citizenship and greater domestic happiness. 



476 POLITICAL ECONOMY. 

befoi'e compelled by the ordinance of nature to share his bread 
and meat with the blacksmith, carpenter and mason, the 
schoolmaster, lawyer and doctor. 

It is perfectly true, therefore, as the protectionist asserts, 
that a tariff of customs duties upon foreign goods imported 
into new countries tends to create and maintain high rates of 
wages in the factory industries. But for protective duties, 
those articles which, in their nature, can be readily and 
cheaply transported will be produced predominantly in coun- 
tries where the minimum standard of mechanical a\ ages is set 
by agricultural conditions far less favorable than those which 
obtain in the United States, in Canada, or Australia, 

But while the law thus can and does create high rates of 
wages in factory industries, it does not and it cannot create 
the wealth out of which that excess of manufacturing wages 
over those of older countries is paid. That wealth is created 
by the labor and capital employed in the cultivation of the 
soil. 



INDEX. 



Argyle, Duke of *. restrictions on 
. tl)e contract for labor, 200, 374 

Arithmetical m. Geometrical pro- 
gression, 308-10 

Art : Political Economy as an art 
(a branch of statesmanship) dis- 
tinguished from political econ- 
omy as a science, 20-1 

Assiguats, so called, of French Re- 
volutionary period, 161, 163, 173 

Athens, progressive taxation in, 450 

Austria, paper money, 402 

Authority, legal, excluded from 
our definition of value, 5 

Ability, as the. rule of taxation, 
441-2, [See, also. Faculty. ]_ 

Abstinence, the creator of capital, 
67 ; interest, the reward of ab- 
stinence, 232-3 

Accumulation, how influenced by 

■ the rate of interest, 232-4 

Agriculture — deemed by the phy- 
siocrats tlie sole source of wealth, 
34r-5 ; subject to the condition of 
"diminishing returns," 35-39; 
plea that manufactures should 
be built up artificially to save 
exportation of the properties of 
the soil, 42-3 ; follows the pas- 
toral condiliou in natural order 
of development, 46 ; the fluctua- 
tions in agricultural products 
render them a defective standard 
for deferred payments, 146-7 ; 
competition of agriculture with 
manufactures in new countries, 
470-6 

Alcoholic beverages, English ex- 
penditures upon, 322n 

Alison, Sir A., early marriages in 
lifland, 311n ; the potato, 320n 

Amsterdam, Bank of, 346-7 

Andersen, J,; auuouuces law of 
reut, 214 



Babbage, Charles : cost of the ma- 
terials of the iron manufactures, 
39 ; the division of labor pro- 
moles invention 59 

Bacon, Lord: the true labor of 
philosophy, 18 ; the burden of 
taxation, .331n ; on usury, 338, 
341-2. 343n 

Bagehot, Walter : influence of in- 
convertible paper money on for- 
eign exchanges, 174 ; the law of 
natural selection in "its applica- 
tion to mankind, 307n ; the early 
Italian banks, 346; bi-metallism, 
414 

Banking Functions, the, 346-53 ; 
the banking agencies, 353 ; the 
State participating in the profits 
of banking, 433 

Banking principle, the, so-called, 
vs. the currency principle, 179-80 

Bank Money, Chap. 5, Part III ; 
also, 352-3 ' 

Bank of England ; circulation, 
179n; its foundation, 346 

Bases of Taxation, 437 

Bastiat F. : confuses ethical and 
economical reasoning, 27 ; the 
economical harmonies, 274 ; the 
story of Jacques Bonhomme, 
327-8 

Barter, the primitive form of ex- 
change, 125 ; involves a double 
coincidence of wants and of pos- 
sessions, 125-6 

Beaulieu Leroy, domains, 430n 

Belgium, underfed laborers, 49-50 

Bentham Jeremj'^: relation of fiscal 
science to political economy, 
290n ; escheat e/ce taxation, 426-7 ; 
approves banking monopolies, 
434 ; attacks judicial fees, 436 

Bequest, [See Successions] 

Bi-Metallism, 849, 406-417 



477 



478 



INDEX. 



Birth rate, diminislied by increape 
of ecouoniic desires, 314-5 

Bowec, Fraucis: the value-denomi- 
nator, 143-4n 

Brabazon, Lord : inadequate food of 
Frencli factory liauds, 49 

Brassage, ]52n - 

Brassey, Tliomas: superiority of 

, Englisli labor in railway con- 

• struction. 57 

Brodie, George: sale of oflSces by 
Charles I, 428n ; monopolies, 
433 

Building lots, rent of, 226-7 

Bullion, its relation to coin, 150-6 

Burke, Edmund: nothing so great 
an enemy to accuracy of judg- 
ment as want of classification 
and distribution, 31 ; the fiscal 
motive to paper money issues, 
403 ; ])urveyance, 436-7 

Cairues, John'E. : The character 
and logical method of Political 
Economy, 13-15 ; asserts for it 
the dignity of a science, 19-20 ; 
obstacles which political econo- 
my encounters through its close 
affinity to the moral sciences, 
39 ; importance of the law of 
" diminishing returns," 35 ; the 
friction of retail trade, 116 ; his 
theory of non-competing groups, 
121-24. .271 ; relief of over- 
crowded occupations, 271 ; iu- 
diflfereuce of the rate of profits, 
276-7 ; lamez faire, 286-7, 
463-4 ; co-operation, 355-7 ; bi- 
metallism, 414 

Calvin, John, on usury, 337 

Cameralistic science, its subject 
matter, 290 

Canard, N. ,F. : the diffusion of 
taxes, 460 

Cancellation of indebtedness, by 
banks and clearing houses, 348 

Capability, productive, of a com- 
munity, Chap. 4, Part II 

Capital. Chap. 3, Part II; partial 
immobility of capital, 74^5 ; the 
remuneration for its use, i. e., in- 
terest. Chap. 3. Part IV , rela- 
tion of capital to tlie scheme of 
co-operation, 355-7 ; relation of 
capital to wages, 377-84 [With 
reference to taxation, See 
Wealth] 



Carey, H. C : Prof. Perry com- 
plains that he confuses labor and 
capital, 201 ; his attacks upon 
the doctrine of rent, 215 

Catallactics, the word offered b}'' 
Archbishop Whatelj^, as a sub- 
st'.ute for political ecouomj', 31 

Celibacj^ [See Marriage] 

Chadwick, Edwin : the cellar popu- 
lations of the English cities, 53 

Charles I, of England: sale of 
offices, 428 ; of monopolies, 433 

Chastity, female, how affected by 
the provisions of the English 
poor laws, 421-2 

Cheap money, is inconvertible 
paper money cheap ? 168-70 

Cheerfulness, as contributing to 
labor power, 54-5 

Cherbuliez, A. E. : domains, 431 

Chevalier, Michel: money econo- 
mizes labor, 128 ; applies the 
term Brassage to the actual cost 
of coinage, 152n ; industrial 
mobility of the American, 269 ; 
effects of an increase of • the 
money supply, 404n ; bi-me- 
tallisni, 413-4 

Child, the, its relation to the sub- 
sistence of the familjr, 303-5 

Civilization tends to diminish the 
sum of values, 9-10 ; effects 
of moue}' in promoting civiliza- 
tion, 128 

Clamageran, J. J. : sale of offices in 
France, 429n ; the physiocralic 
theory of taxation, 437n 

Clearing-house, the bankers' bank, 
348 

Climate : a good climate is not 
capital but a favorable condi- 
tion of production, 61-3 

Clothing, its relation to subsist- 
ence, 300-1 

Cobden, Richard: the commuta- 
tion of the feudal burdens upon 
land in England, 392-3 

Coinage, 131-2, 140-1; cost of, i.e., 
seigniorage. Chap. 3, Part III 

Coin basis of bank money, [See 
Reserve, Specie] 

Coin, debasement of ; seigniorage. 
Chap. 3, Part III 

Combination, in economics op- 
posed to competition, 90 



INDEX. 



479 



Comfort, ideas of, developed in the 
progress of society, 14, 313-7 

Commerce, the old time theory 
that it could be beneficial to but 
one party, 2-3 

Commodities, distinguished from 
services, 199-201 

Community of goods, what would 
become of wealth ? 7-8 

Competition defined, 96 ; opposed 
to combination, 96 ; also to cus- 
tom and sentiment, 97 ; Prof. 
Cairnes' noncompetiug groups, 
121-4-, 271 ; relation of the theory 
of competition to the doctrine of 
rent, 216-8 ; relation of compe- 
tition to the doctrine of interest, 
240-2 ; to the doctrine of wages, 
Chap. 5, Part IV., also 368-76 

Competition, failure of, 224-5, 
241-3, 268-81, 369-70, 376-7, 
470 

Comte, Aug. : denies to political 
economy the character of 
a science, 18, 27-8 

Consumers and producers, possi- 
ble misunderstandings between, 
Chap. 6, Part III 

Consumption of wealth : Prof. 
Leslie holds that the neglect of 
this department of enquiry is due 
to the assumption of a beneficent 
order of nature, 25u ; consump- 
tion as a department of political 
economy, 299-301, Part V, pas- 
sim 

Consumptive vs. productive co- 
operation, 359-61 

Continental currency, so-called, of 
the American revolution, 161, 
163, 173 

Contributions to the treasury of 
the State, 424-5 ; (compulsory : 
see Revenue of the State and 
Taxation) 

Co-operation : an effort to get rid 
of the entrepreneur, 77-8 ; erro- 
neous conceptions of many econ- 
omists, 257-9, 354-7; anticipated 
benefits of, 357-9 ; practical 
difficulties, 359-63 

Corn rents, 148-150 

Corners, so called, as a tool of the 
speculating chiss, 296 

Courcelle-Seneuil, J. G. : deprecia- 
tion not a necessary result of 



Courcelle-Seneuil, J. G. {Con.) 
inconvertibility, 168n ; the theory 
of bank money, 178 

Creasy, Sir Edward, the feudal 
burdens on land, 390-1 

Credit sales, the characteristic, 
145 ; their great importance in 
modern exchange, 145-6 ; the 
multiple standard of deferred 
payments, 363-8 

Crises [See Panics] 

Cultivation, descending to inferior 
soils [See Diminishing Returns] 

Currency principle, the, so-called 
«,s.the banking principle, 179-80 

Custom, its influence in modify- 
ing law or competition, 14 ; 
is always, in theory, opposed to 
competition, 97 ; its effects on 
price. 111 

Darwin, Charles: the power of 
geometrical increase, 340 

Del)asement of the coin. Chap. 3, 
Part III - 

Debtor class, their demand for 
paper money issues, 403-6 

Decency, ideas of, developed in the 
progress of society, 14 ; power 
to check population, 313-18 

Deferred payments, standard for, 
[See Standard, etc.] 

Definitions, in economics, not less 
valuable because certain objects 
may fall across the lines of de- 
marcation, 5 ; difficulty which 
political economy encounters 
from the use of terms taken from 
common speech, 30-1 

Degradation of the laboring class, 
through unequal competition, 
273-4,. 370-1 

Demand and supply, defined, 92; 
desire is not demand, 92-3; ope- 
ration of demand and supply il- 
lustrated, 93-100; (Money), 166-7 

Demand, international, equation 
of, 122-3 

Denominator of value, 143-4 ; 
how about paper moue}^ ? 164.-5 

Departments, the four depart- 
ments of political economy, 31; 
argument for their retention, 
31-3, 199, 301 

Deposits, fictitious, as a means of 
evading usury laws, 343 [See 
Safe Deposit] 



480 



INDEX. 



Deposit and Discount, the great 
banking function, 351-3 

Depreciation, not a necessary re- 
sult of debasement of coin, 156; 
or of inconvertibility of paper, 
167-8 

DeQuincey, Thomas: "Profits are 
the leavings of wages," 267 

Desire is not demand, 93 

Desires, economic, tend to mul- 
tiply as fast as gratuity replaces 
value in the case of articles 
which were the subjects of for- 
mer desires, 9-10, 46, 66-7, Chap. 
3 and 3, Part V 

Destruction of wealth, keeping 
down accumulations of capital, 
79-80; popular notion that it 
stimulates production, 336-9 

Deterioration, liability to, as affect- 
ing price, 110-1 

Devon, Earl : Irish Commission of 
1844, 311 

Diet diversified, taste for, as an- 
tagonizing the procreative force, 
315 

Difference, economic, what con- 
stitutes an economic difference? 
103 

Diffusion of taxes, 438, 458-61 

Diminishing returns in agricul- 
ture, 34-9, 71-3, 206, 368, 384 

Discipline creates no force but 
may prevent waste, 379-80 

Discount and deposit, the great 
banking function, 351-3 

Discredit of money, its influence 
on the money demand, 133 

Distribution, as a department in 
political economy. Chap. 1, 
Part IV 

Division of labor [See, also, Terri- 
torial Div. of Lab.], how it 
originated , 57; how it becomes a 
source of productive power, 5S- 
GO; gives rise to exchange, 83-3, 
124-5; evil possibilities attendant 
upon, Chap. 6, Part III 

Donuiiiis, as a source of revenue 
to the State, 439-31 

Dress, as a form of consumption, 
• 313-7 

Dynamics of wealth, found in con- 
sumption, 333 

Economics: [See Political Ecouo- 



Efficiency of the individual la- 
borer, dependent on several 
causes, 47-56; varying efficiency 
of labor in different countries, 
56-7; relation to wages, 383 

Emigration of capital, 343-4; of 
labor, 368-73 

Employer, the, [See Entrepreneur] 

Employment, regularity of, as an 
element in wages, 360-1 

Employed laborer, [See Laborer] 

England, insufficient food of agri- 
cultural laborers, 50; contrasted 
with India and Russia as to the 
efficiency of its laborinii' pojjula- 
tion, 56-7; its industrial organ- 
ization, 303-3; rents kept down 
by public sentiment, ^218-9, 
224; ratio of income to accumu- 
lated wealth, 299; birth rate, 
317; its usury laws, 337-8; its 
strikes and trades unions, 370-1; 
factory legislation, 874-7; Avagcs 
compared with those of the 
U. S., 379-80; poor laws, 418- 
24; progressivity in taxation, 452 

English School of Political Econo- 
mjr, so called, 13-3; erroneous 
views of English economists re- 
garding the relation of wages to 
the product of iudustr}'', 266-8 

Entrepreneur class, the, their 
function, 76-79, 183-4; as claim- 
ants to a share of the product of 
industry, 203; Chap. 4, Part IV, 
also 354-63; the State as entre- 
preneur, 431-3 

Equation of international de- 
mand, 133-3 

Equity, political, its relation to 
political economy, 36-7 

Equities of contribution to the 
Slate, 437-8 [See also Taxation] 

Escheat, as a source of State reve- 
nue, 438-9 

Esprit de corps in industry, 61 

Ethics, relation to economics, 14r-5, 
36-7 

Exemptions from income, prior to 
taxation, 449-53 

Exchange, the old-time theory 
that it could be beneficial to but 
one party, 2-3; arises from the 
division of labor. 82-3, 124-5; 
its reaction upon production, 
Chap. 6, Part III 



INDEX. 



481 



Exchange, the science of, this 
term offered as a substitute for 
Political Economy, 3-4 

Exchange, as a department of Po- 
litical Economy, Part III ; how- 
distinguished from distribution, 
199-201 

Exchange : Foreign, or Interna- 
tional, 173-4, 848-51; "Dry 
exchange," as a means of evad- 
ing usury laws, 343-4 ; par of 
exchange, 349-50 ; between 
gold using and silver using 
countries, 410-2 

Exhaustion of the soil, 40-2 

Expenditure, as the basis of tax- 
ation, 443-7 

Factory laws, 200-1, 271-2, 278-81, 
274-7, 461-5 

Faculty, as the basis of taxation, 
447-9 

Family, the formation of, 301-4 ; 
solidarity of , 305-8 

Fawcett, H. : insufficient food of 
West of England laborers. 50 ; 
Prof. F. makes subsistence the 
equivalent of capital, 70 ; Cottier 
rents in Ireland, 222u; differing 
wages in different localities, 
270; the doctrine of the Wage 
Fund, 379n 

Fecundity, made by M. Comte a 
test of a true science, does 
political economy bear this test ? 
20 

Fees, as a means of revenue, 
436-7 

Feudal burdens on land, how 
commuted ? 390-5 

Fiat money, [See Inconvertible 
Paper Monej^j 

Fmal utility, 99-100, 106 

Financiering, as a banking func- 
tion, 346 

Fines and forfeitures, as a source 
of revenue to the State, 427 

Fittest, survival of, [See Survival] 

Fixed incomes, relation to the 
multiple standard, 363-8 

Food, [See, also, Subsistence] : its 
relation to labor power, 47 ; the 
primary form of capital, 69- 
70 

Force, productive, cannot be lost 
out of nature, but may be lost 
out of man's reach, 41 

31 



Forced circulation, generally a 
characteristic of government 
paper money, 161, 165 

Forced sales, sometimes caused by 
usury laws, 343-4 

Form-value, 33-4 

France : underfed factory hands, 
49 ; repairs the losses of the 
German war, 299 ; birth rate, 
317 ; progressivity in taxation, 
450-1 

Francis, John : the city banks of 
London, 351 

Free, distinguished from gratu- 
itous coinage, 151-2n 

Free trade and exhaustion of the 
soil, 42 ; and the territorial divi- 
sion of labor, 60, 470-6 [See 
Protection m. Freedom of Pro- 
duction] 

French economists apt to confuse 
ethical and economical reason- 
ing, 27 : right in their views of 
the relation of wages to the pro- 
duct of industry, 266n 

Fullarton, J. : bank money of the 
United States before 1837, 177n ; 
the theory of bank money, 178 

Gallatin Albert : bank money be- 
comes a sort of legal tender, 
177n 

Gangs, agricultural, so-called, in 
England, (children), 272 

Gamier, Joseph: progressivity in 
taxation, 451-2 

Geneva, bank of (St. George), 346 

Geometrical m. arithmetical pro- 
gression, 308-10 

Georee, Henry, his "Progress 
and Poverty," 393n 

Germany, its railroad system, 
432-3 

German school of political econo- 
my, so-called, 12-3 

Gibbon, E., likens money to 
letters, 128 

Gilbert's Act (English Poor Laws), 
419-21 

Girdlestone, Canon : the diet of the 
laborers of Devonshire, 50; their 
homes, 51 

Girardin, Emile de: voluntary con- 
tributions, 424n 

Gladstone, Wm. E.: his Budget 
Speeches, 439 

Glut. [See Oveiproduction.] 



483 



INDEX. 



Gluttony : regarded by Mr. Mill as 
a perpetually antagonizing prin- 
ciple to the desire of wealth, 15-6 

Gold [See Precious Metals ; in its 
relations to Silver, see also Bi- 
metallism. ] 

Gouge, Wm. M. : the theory of 
bank money, 186 

Government, as producer and con- 
sumer,288-91, 330-3 ; its revenue, 
and the means of obtaining it, 
424-461 

Government administration of pro- 
ductive property, 897-8, 430-3 

Grain, as money, 146-9 

Gratuity, relation to value, 8-10 

Gratuitous, distinguished from 
free, coinage, 151-3n 

Greed, often antagonistic to the 
enlightened pursuit of wealth, 3; 
rebuked by political economy, 8 ; 
needs at times to be held in check 
by law, 371-7 

Greenbacks, so- called, of the United 
States, 161-3, 166, 169n, 403-4 

Gresham's Law, 143 

Ground rents, 236-7 ; to be dis- 
tinguished from the remunera- 
tion of the sums expended in 
building and improvements, 
338-9 

Hallam, H. : the penal code of 
Ireland, 320 

Hamilton, Alex. : the danger of 
paper money issues, 403n 

Hard times, so-called, their cause, 
73, 183-196 

Harmonies, the economic, 373-4 

Harrison, Fred'k: the small success 
of productive co-operation, 361 

Harvesting, subject to tlie condi- 
tion of diminishing returns, 
37-8n 

Hastings, George W. : necessity of 
the workhouse test, 433-4 

Hazardous risks of capital, how 
compensated, 336-7 

Health is not wealth, though per- 
haps better than wealth, 6-7 

Hearn, Wm. E. : substitutes the 
term Plutology for Political 
Economy, 31 ; explains the for- 
mer idleness of the Scottish peo- 
ple, 56. 

Hebrews, ancient, usury forbidden, 
336-7 



Higgling in the market, 116-7 

Hoffmann, J. G. : the literature of 
taxation, 439 

Holland, underfed laborers, 49 

Hopefulness in labor, as an ele- 
ment of productive power, 
54-5 

Hume, David : effects of an increase 
of metallic money, 405 

Hunter state, the, 44-5 

Huskisson, Wm. : repeal of the 
laws against combinations, 371 

Immobility of capital and labor 
[See Mobility, etc.] 

Income as the base of taxation 
[See Revenue .] 

Inconvertible Paper Money, Chap. 
4, Part III 

Increment, the unearned, of land, 
329, 385-98 ; 435, 437-8 

India — the efficiency of its laboring 
population contrasted with that 
of the English, 56 ; periodical 
famines, 68, 311u ; increase of 
population and condition of the 
people, 311; possible relation of 
taxation to production, 331-3 ; 
early marriaees, 333 ; the land 
system of, 38^8-90 

Indifference of the rate of profits, 
a doctrine, 276-7, 282, 285-6 

Indolence, regarded by Mr. Mill 
as a perpetually antagonizing 
principle to the desire of wealth, 
15-6 

Inflation (money), .158-9, 172-4 ; 
tendency to inflation inhering in 
political money, 401-6 

Inglis, H. : the city houses of Ire- 
land in 1834, 51 

Injuries, economic, tend to remain, 
275-6 

Injustice, only becomes a subject 
for the consideration of the 
ecouomist when it issues as an 
economic force influencing the 
actions of men with respect to' 
wealth, 26, 7 

Institutions, how far shall they be 
considered by the economist ? 
12-18, 26 

Insurance of the principal, an im- 
portant element of interest, 
236-7 

Intellectual elements of supply 
and defaand, 113-4 



INDEX. 



483 



Intelligence, not wealth, 6-7; as a 
source of productive power, 
58-4 

Interest, as a share in the pro- 
duct of industry, 203, 263-4, 
Chap. 3, Part IV ; tends to fall 
in the progress of societj^ 387 ; 
[See Usury Laws, 336-46] 

International, The. Will it have 
the courage to tax faculty ? 448 ; 
it will favor progressive taxa- 
tion, 455 

International trade, Mr. Mill's 
view of, 118-20 

International values, Mr. Mill's 
theory, 120-22 

International distribution of money 
137-8 

International division of labor, 
[See Territorial, etc.] 

Invention facilitated by the divis- 
ion of labor, 59 

Ireland, the economical mischiefs 
of its land tenure almost irre- 
spective of considerations of po- 
litical equity, 26 ; inadequate 
shelter of the laboring popula- 
tion, 51; the "starving season," 
68-9 ; rents: relation of the land- 
lord and tenant class, 220-5 ; in- 
crease of population and stale 
of the peasantry prior to the 
famine, 310-1 

Irish, their traditional idleness at 
home due to unfair laws, 56. 

Jackson, Andrew : his recommen- 
dation regarding the disposal of 
the public lands, 431 

Jarvis, Edward : varying viability 
of the several nations of Europe, 
361 

Jevons, "W. S. : illustration of the 
descending scale of utility, 99 ; 
but one price for a commodity, 
101 ; substitution of one com- 
modity for another, in use, as 
affecting price, llOn ; the British 
coin, 141 ; the denominator of 
value. 143 ; advocates a tabular 
or multiple standard, 149,366-7; 
repudiates the doctrine of the 
wages fund,266n ; the laissezfaire 
doctrine. 279n, 280n,287; the law 
of wages, 284 ; the dynamics of 
wealth, 299n ; his Money and the 
Mechanism of Exchange, 348u ; 



Jevons, W. S. {Continued) 
government interference with 
labor, 374 ; fluctuations in the 
value of gold, 1789-1874, 400n ; 
bi-metallism, 414-5 

Johnson, S. W., on the renewal of 
the soil by "weathering" and 
nitrification, 43-4 

Johnston, J. F. W,, the constitu- 
ents of the soil taken away in 
the crop, 41 

Knies, Prof., his classification of 
values, as time- value, place- value 
and form-value, 33-4 

Labor, employed in agriculture 
subject to the condition of di- 
minishing returns, 35-8 ; not 
so when employed in mechani- 
cal industries, 38-9 ; as one of 
the three primary agents of pro- 
duction ; Chap. 2, Part II; vary- 
ing eflBiciency of labor, 47-57 ; 
partial immobility of labor, 87- 
8 ; relation of labor to value, 
89-91 

Laborer, the, as a claimant to a 
share of the product of indus- 
try, 203, 265-6 

Laissez Faire, the doctrine, 278- 
81, 286-7, 463-4 

Land, its tenure, how far of con- 
sequence to the economist ? 14, 
26 ; one of the three primary 
agents of production, 34^4 ; the, 
a fund for the endowment of the 
human race, 39-41 ; original 
tenure in common, 387-8 ; treat- 
ment of the land in India, 388- 
90 ; in England, 390-3 

Landlord, the, as a claimant to a 
share in the product of industry, 
253, Chap. 2, Part IV 

Latin Union, so-called, its monetary 
league, 152-8, 413, 417 

Laws, how far shall they be con- 
sidered by the economist, 12-18, 
26-27 

Leave-them-as-you-find-them rule 
of taxation, 438, 443 

Leslie, T. E. Cliflfe, influence of 
natural theology on political 
economy, 24^5 

Liverpool, Lord: ancient bankers, 
346 

Loans, [See Interest and Usury 
Laws] 



484 



INDEX. 



Locke, John, on usxuy, 344n 

Lotteries, as a means of revenue to 
the State, 434-5 

Lubbock, Sir, J. W., fictitious 
deposits as a means of evading 
usury Jaws, 342 

Luxury, ideas of, developed in the 
progress of society, 14 ; its ap- 
pearance in luiman societies, 
313-7 

Machiner3% great differences 
among different peoples in the 
capacitjr of using it, 53-4 ; in- 
troduction of machinery as 
tending to set producers and con- 
sumers apart, 181-3 

Malthus, T. R. : the law of popu- 
lation, 308, 312, 318-9 

Man, the economic, 11-18 

Manchester, or Laissez Faire, school 
of economists, 278 

Mansfield, Lord : diffusion of taxes, 
458-9 

Manufactures : not subject to the 
condition of diminishing returns, 
38-9 ; plea for building up local 
manufactures to prevent waste 
of soil, 42-4 

Market, what is it ? 103 

Market price, its relation to nor- 
mal price, 106-7 

Marriage ; earlj^ marriages in Ire- 
laud, 311; in India, 332n; dis- 
couraged by economic desires, 
314-5 

Marsh, Hon. Geo. P. : man's abuse 
of Nature, 41 

Marshal], Alfred and Mary Paley. 
Economics of Industry : honesty, 
a part of the " personal wealth " 
of a country, 6; influence of 
"plant" on the prices of com- 
modities, llln; the course of 
speculation and the cause of pan- 
ics, 183-5 ; effect upon accumu- 
lation of a low rate of interest, 
233n; employers in England ris- 
ing from the ranks of labor. 246n ; 
" rent of natural abilities," 247n 

Martineau, Harriet : effects of a 
premium on illegitimacy, 421-2 

Massachusetts paper money, 403 

Mastership iu production, 61-2 ; 
75-7; 183-4; 203, 354-63 

Materials, the third form of capi- 
tal, 69-70 



May, Sir E. : the English Crown 
lands, 430n 

McCuUoch, J. R. : varying fertility 
of soils, 204 ; relation of wages 
to profits, 267n ; wages and chedp 
food, 320 ; his view of govern- 
mental expenditure, 330-1 ; ef- 
fects of an increase of the monej'^ 
supply, 404u ; proposes the pure- 
h'' economical theory of taxation, 
4*38, 457-8 ; his treatise on tax- 
ation and the funding system, 
439 

McLeod, H. D. : distribution as a 
department of political economy, 
197n ; Loudon rates of interest, 
336n 

Measure of value, so-called, [See 
Denominator of Value]. 

Mechanical industry, not subject 
to the condition of diminishing 
returns, 38-9 

Medium of exchange, money 
serves as the, 126-8 ; how about 
paper money ? 162-3 

Metals, as money, 129 

Metals, the precious, as moncj% 
130; the irregularity of their pro- 
duction, 147-8, 363, 409-12; 
[See also Bi-metallism and Mul- 
tiple Standard]. 

Middlemen, so-called, in Ireland, 
a distinct species of social ani- 
mal, 221 

Mill, John Stuart: correctness of 
the popular conception of wealth, 
4 ; fails to observe distinction 
between wealth and property, 10; 
his statement of the premises of 
the Ricardian school, 15-6 ; he 
replies to Comte's criticism 
founded on the consensus of the 
social phenomena, 28 ; recog- 
nizes exchange as a department 
of political economy, 81 n; the 
friction of retail trade, 116-7 ; 
his view of international trade, 
118-30 ; of international values, 
130-2; custom, iu economics, the 
protector of the weak, 219 ; 
the unearned increment of land, 
239-30 ; 386-98 ; doctrine of 
the wage fund, 878ii. 379n 

Mines, rental of, 337-8 

Mints, of various countries, 140u 

Mobility of capital and labor, how 



INDEX. 



485 



Mobility of Capital, etc. {Continued) 
far secured, 74-5, 268-73, 378-86 

Money, Chaps. 3, 3, 4 aud 5, Part 
III ; interest paid, in general, 
not for the use of money, but of 
other forms of capital, 231-3 ; 
[See also Bank Money, Inconver- 
tible Paper Money, Political 
Money, Bi-metallism]. 

Monometallism, [See Bi-metallism] 

Monopolies, as a source of revenue 
to the State, 433-4 

Monopoly value, 90 

Moral considerations, how far do 
they concern the economist ? 
14-5, 36-7 

Moral elements of supply and de- 
mand, 113^ 

Mosaical code, prohibits usury, 
336-7 

Mortgages, are they wealth, or only 
property ? 10-1 

Motives, economic, shall all be 
taken by the economist, or only 
a few leading motives? 11-8 

Multiple standard, for deferred 
payments, 149-50 ; 363-8 

Napoleon, avoided the use of 
paper money, 169n 

"National " Political Economy, so- 
called, 21-3 ; why should indus- 
trial correspond to political enti- 
ties ? 466-70 

Nature, the assumption of a bene- 
ficent constitution of, as influenc- 
ing the pursuit of political econ- 
omy, 24-6 

Nature, human : how far shall the 
economist seek to comprehend it, 
and include it in the premises of 
his reasoning ? 11-18. 

Nelson, Dr. : varying mortality of 
the several trades and professions, 
361 

New countries, so-called, why 
wages are high in them, 470-6 

Newmarch, Wm. : his papers on 
the British National debt, 439 

Nicliolls, Sir George : effects of Gil- 
bert's act, 430-f 

Nicholson, N. A. : relation of issues 
to banking, 353 

Nitrification, so-called, as a means 
of renewing the soil subject to 
culture, 43-4 

Nominal vs. real wages, 200-1 



Nominal m. real cost of labor, 363 

Non-competing groups : Professor 
Cairnes' theory, 131-4 

Normal price : its relation to mar- 
ket price, 105-6 

Norman, Geo. Warde : the theory 
of bank money, 179-80 

North, Dudley: free coinage, 153-3 

Occupation, change of, as a means 
of relieving the labor market, 
370-1 

Offices, sale of, 438-9 

One price only for a commodity, 
100-3 

Opinion, public, influence on 
wages, 281-4 

Organization of industry, 60-2 ; as 
affecting price. 111. 

Ortes, G.: intimates the laws of 
population, 312 

Over-production, what the term 
means, 323-4 

Overstone, Lord : the theory of 
bank money, 179-80 ; the course 
of speculation and over trading, 
186-7 ; relation of issue to de- 
posit and discount, 353 

Panics, the causes of, 184-7 ; in 
the United States, 188-9, 195-6 

Paper money : [See Bank Money, 
and Mercantile Paper Money] 

Par of exchange : what it is, 349- 
50 

Parieu, E. de : the literature of 
taxation, 439 ; the diffusion of 
taxes, 460 

Pastoral state, the, 54 

Pauperism, 417-24 

Pawn, laying to, as a means of 
evading usury, 341-2 

Perry, A. L. : abandons use of 
word wealth, 3n; complains that 
Mr. Carey confuses the bounda- 
ries of labor and capital, 206 ; 
doctrine of the indifference of 
the rate of ])rofits, 276 ; doc- 
trine of the wage fund, 378n 

Petty, Sir Wm. : his theory of tax- 
ation, 444 

Physiocrats, the French, treated 
political economy as 8n art, 20 ; 
deemed agriculture the sole source 
of wealth, 34-5 ; their theory of 
taxation, 437-8 

Physiology of man, how far of cou- 
seqvxence to the economist? 12-18 



486 



INDEX. 



Picking, or selecting, the coin, 
139-40 

Place-value, 33 

Plant, so-called, its existence as af- 
fecting price, 111. 

Plutology, the term offered by 
Prof. Hearn as a substitute for 
political economy, 30 

Political economy, its character 
and logical method. Part I 

Political money, 398-406 ; [See 
also, Inconvertible Paper Money] 

Politics, and economics, 277-9, 
372-3 

Polo, Marco : the Chinese paper 
money, 160 

Poor laws, [See Pauperism] 

Pope, the, as a capitalist, 424n 

Population increases as tribes pass 
from the hunter to the j^astoral 
state, and again as they initiate 
agriculture, 45-6 ; relation of 
subsistence to population, Chap. 
1-3, Part V; effect of the in- 
crease of population in driving- 
cultivation down to inferior 
soils, 34-9,71-2, 206, 268, 384 ; 
as affecting the tenant class in 
their competition with landlords, 
221-4 

Potato philosophy of wages, 319-21 

Powell, Gabriel, on usurj^ 340-2 

Practical men, so-called or self- 
called, their readiness to assert 
their opinions on economic ques- 
tions, 29-30 

Prediction, capabilitj^ of, made by 
M. Comte a test of a true science, 
18 ; does political economj^ bear 
this test '? 19 

Prejudices, popular, their influ- 
ence on political economj% 29 

Premises of political economy, 11- 
2 ; two schools of P. E., 13-18, 
26-7 
Piice, relation to value, 85, 135-6 ; 
but one price for a commoditj'', 
100-2 ; normal and market 
price, 105-7 ; price the agent in 
the international distribution of 
money, 137-8 ; relation of rent 
to the price of land, 210-211 ; 
to the price of agricultural pro- 
duce, 211^ ; relation of profits 
to the price of manufactured 
produce, 252-3 



Price current, need of, 143 ; how 
about paper money? 164-5 

Price, Bonamj^ objects to dropping 
the word wealth, 4 ; deprecia- 
tion not a necessary result of in- 
convertibilit3% 168 

Procreative force, the, its capa- 
bilities, 308-10 ; its persistence, 
310-1 ; antagonized by economic 
desires, 314r-5 

Production of wealth. Part II, 
modes of production, 33-4 ; 
agents of production, 34 ; pro- 
ductive capability of a com- 
munity, Chap. 4, Part II ; re- 
action of exchange upon pro- 
duction. Chap. 6, Part III 

Producers and consumers, their re- 
lations and possible misunder- 
standings, Chap. 6, Part III 

Productive co-operation, [See Co- 
operation] 

Production, cost of, how related to 
value, 89-91 

Profits, of the entrepreneur, his 
motive in production, 183-4 ; 
profits, a share of the product of 
industry, 203, 264-5, Chap. 4, 
Part IV ; profits and rent are 
species of the same genus, 247- 
57, 285 ; profits do not form a 
part of the price of manufactured 
products, 252-3, 265 ; are not ob- 
tained by deduction from wages, 
254-5 ; doctrines of the indiffer- 
ence of the rate of profits, 276 ; 
in co-operation the laborers aim 
to secure the entrepreneur's 
profits, 353-8 

Progressive taxation, 450-455 

Property, relation to wealth. 10 ; 
not properly an economic term, 11 

Protection m. freedom of produc- 
tion, 461-76 

Protectionist writers, hold that 
each country has a political 
economy of its own, 22 ; make 
much of the exhaustion of the 
soil, 40, [See, also, GO] 

Purdy, Fred. : variations in wages 
throughout England, 283n 

Purveyance, as a means of revenue, 
435-6 ^ 

Quasi taxes, 43^37 

Quesnay, M., his school of econo- 
mists, 34-5 



INDEX. 



487 



Raguet, Condy : bank money in the 
tJuited States, 177n, 180 

Railways of Germany, 432-3 ; taxes 
on fares and freights, 434 

Real m. nominal wages, 260-1 

Real m. nominal cost of labor, 263 

Realized wealth, (taxation) see 
Wealth 

Redeeraability of paper money, 
what it implies, 161-3, 177-8 

Registration of land, the require- 
ment adds virtually to the facility 
of transfers, 280 

Rent, as a share in the distribution 
of the product of industry, 203, 
263, Chap. 3, Part IV ; its rela- 
tion to the price of land, 210 ; 
its relation to the price of agri- 
cultural produce, 211-4, 385-6 ; 
tends to rise with growth of 
population, 386-8 ; rent and 
profits are species of the same 
genus, 247-57 ; does rent belong- 
in equity to the community ? 
229-30, 386-98 

Repercussion of taxes, [See Diffu- 
sion, etc ] 

Reserve, specie, of bank money, 
176-7 

Restriction, so-called, the English, 
161, 166 

Retail trade, the friction of, 115-17 

Revenue (individual), as the basis 
of taxation, 442-6, 449-52 

Revenue of the Stale, 424-39 

Ricardo, David : his school of 
political economy, 16-7 ; treats 
political economy as a science, 
not as an art, 21 ; expresses a 
necessary qualification of 
Gresham's law, 143ii ; his views 
on seigniorage, 153-6 ; depre- 
ciation not a necessary result of 
iuconvertibility, 168u ; his rela- 
tion to the doctrine of rent, 
314-5 ; relation of wages and 
profits, 267 ; the incidence of a 
land tax, or tax on rents, 393, 
394 ; Iiis treatment of taxation, 
439 

Rogers, J. E. T : the higgling of 
the market, 116 ; rents in Eng- 
land, 219; wages and cheap food, 
320 ; co-operation , 355n ; the in- 
surrection of the peasantry under 
Richard II, 373 ; enhancement 



Rogers, J. E. T. {Continued) 
of value of gold by the coinages 
of Northern Italy, in 13th cen- 
tury, 398n ; the diffusion of 
taxes, 459 
Roscher, Wm.: definition of capi- 
tal, 63n ; proportion of produce 
consumed upon the farm, 83n ; 
advocates tabular or multiple 
standard, 149 ; the variety of 
man's economic wants, 312-3n 
Russia, the efficiency of its labor- 
ing population contrasted with 
that of the English, 56-7 ; paper 
money, 403 
Safe deposit, as a banking func- 
tion, 351 
Sanitary conditions, as affecting 

the efficiency of labor, 50-2 
Saving [See Abstinence] 
Say, J. B. : progressive taxation, 

450-1 ; diffusion of taxes, 460 
Scarcity value, 90 
Schools of political economy, 

13-18 
Science, does political economy 
attain this dignity ? 18 ; views of 
Comte and Cairnes, 18-30 ; dis- 
tinction between political econo- 
mylas a science and as an art, 30-1 
Scotch, once an idle people, 56 
Scotland, inadequate shelter of the 

laboring population, 61 
Sea, the, as a source for the supply 

of food to man, 40n 
Seasons, their influence on regular- 
ity of employment, 360-1 
Seigniorage, Chap. 3, Part III 
Selecting, or picking, the coin, 

139-40 
Senior, N. W. : relation of value 
to wealth 5 ; relation of gratuity 
to value, 8-9 : relation of rights 
or credits to wealth. 11 ; dis- 
tinction between political econ- 
omy as a science and as an art. 
20-1 ; labor not essential to 
value, 89-90 ; money is "abstract 
wealth," 144n; questions relating 
to distribution of wealth not 
regarded by seventeenth century 
economists, 300n ; opportunities 
for extra earnings, 366 ; the con- 
sumption of wealth, 397 ; rela- 
tion of famine to war, 313n ; the 
order of succession of human 



INDEX. 



Senior, N. W. {Continued) 
desires, 313-4 ; what is a luxury ? 
316-7 ; Lis statement of the law 
of population, 319 

Sentiment, personal, excluded 
from definition of value, 5-6 ; 
sentiment and political economy, 
27 ; sentiment as modifyiuir 
the influence of competition, 79 

Services, distinguished from com- 
modities, 199-201 ; services of 
the possessors of health, sliill, 
strength and intelligence mny be 
the subjects of exchange, though 
those qualities can not be, 6-7 

Settlement (parochial), English 
law of, 422-3 

Shelter, its relation to subsistence, 
300-1 

Shocks, economic, their propaga- 
tion through the industrial and 
commeicial bodjf, 189-93 

Silver [See, Precious Metals ; in its 
relation to Gold, See, also. Bi- 
metallism] 

Sismondi, M. : rents in Tuscany, 
220 

Skill is not wealth, though it may 
become the means of acquiring 
wealth, 6-7 

Slave labor, the cause of its in- 
efficiency, 54-5 

Smith, Adam : his Wealth of Na- 
tions, effect upon the relations of 
Slates, 2-3 ; treated political 
economy mainly as an art, 20 ; 
his economical writings influen- 
ced by his views as a professor of 
natural theology, 24 ; a guinea, 
a bill for goods, 144 ; bank 
money, 176 : distribution as a 
department of political economy, 
197u ; the immobility of labor, 
269-70; masters always in a com- 
bination not to raise wages, 283n, 
372; the stipend class, 291-2 ; the 
bank of Amsterdam, 347 ; volun- 
tary conlributions to the State, 
424 ; inefiicieucy of government 
administration of productive 
property, 430-2 ; his maxims re- 
garding taxation, 440-2 

Social-dividend theory of taxa- 
tion. 438, 440-1 

Sociology : its relations to political 
economy, 27-8 



Soil, the, a fund for the endow- 
ment of the human race, 39-41 

Soldiers, their services economic in 
England, non-economic in Ger- 
many, 5 

Solidarity of the family, as related 
to natural selection, 305-8 

Specie reserve of bank money, 
[See Reserve] 

Speculation, the course of, 184-7 ; 
the speculating class and their 
gains, 272-0 

Steuart, Sir James, treated political 
economy as an art, 20 

Standard of deferred payments, 
usually called standard of value, 
144-6; how about paper mon- 
ey ? 165-6, 171 ; how about bi- 
metallic money ? 411-3 [See 
also Multiple Standard] 

Statistician, the economic, to be 
distinguished from the econo- 
mist, 24 

Stipend class, its relations to the 
wages class, 291-2 

Stock, influence of a stock of a 
commodity on its price, 107 

Storage, necessity of, as affecting 
price. 111 

Strikes, their relation to the doc- 
trine of laissczfaire, 280-1, 286, 
368, 374 ; co-operation would 
abolish strikes, 358 

Structure in industry, 73-9 

Subsistence : provided by capital, 
68 ; in its relation to population, 
Chaps 1-3, Part V 

Substitution of one commodity for 
another in use, as affecting price, 
110 

Successions, limitations upon and 
taxation of, 425-6 

Sumner, W. G.: issuing jjaper 
money to scale down debts, 404n ; 
the doctrine of protection, 465-6, 
468-9 

Supplj'^ and demand, 92-100 

Supply is not equivalent to stock, 
93, 98u, 107-8 

Survival of the fittest, how f.ir 
carried out in the human family, 
305-8 

Sympathy with labor, [See Opin- 
ion, Public] 

Tabular standard, for deferred pay- 
ments, [See Multiple Standard] 



INDEX. 



489 



Taxation, its place in political 
economy, 288-291 ; Bentliam's 
and McCulloch's view of taxation 
as stimulating production, 330- 
1 ; how taxation may be consid- 
ered, 437-439 ; the principles of, 
439-61, [See, also, Quasi Taxes] 

Territorial division of labor, 42 ; 
its advantages, 59-60 ; the pro- 
tectionist argument for limiting 
it, 466-76 

Theology, natural ; influence on 
political economy in the past, 24; 
the proper attitude of the econ- 
omist towards it, 24-5 

Thompson, Prof. R. E. : exhaustion 
of the soil, 41 

Thornton, Henry: the country 
banks of England, 350-1 

Thiiuen, J. H. von: the principle 
of diminishing returns applies 
even to the harvesting of crops, 
37-8n 

Titles, sale of, 428-9 

Time-value, 33 

Tobacco monopoly, as a source of 
revenue, 434 

Tocqueville, A. de: sale of offices 
in France, 429 

Tooke, Thomas: depreciation not 
a necessary result of inconverti- 
bility of paper money, 168n; the 
theory of bank money, 178 ; 
sacrifice of stocks often com- 
pelled by usury laws, 343-4 

Tools, the second form of capital, 
69 ; their importance in produc- 
tion, 70 

Torrens, Robert: the theory of 
bank money, 179-80 

Trades-Unions, 280-1, 286, 368-74 

Transportation, in its relation to 
rent, 208; in its relation to prices, 

Tributes from colonies, dependen- 
cies and conquered nations, 428 

Truck, 377 

Turgot, -A. R. G. : the only physio- 
crat who treated political econ- 
omy as a science ; his strictly 
scientific method, 21 

Twiss, Travers : the potato in Ire- 
land, 320 

Underproduction, what it results 
from, 323-6 

Underconsumption, so-called, 823- 
326 



Unearned increment of land. [See 
Increment, etc.] 

United States: the laboring popula- 
tion well fed and well sheltered, 
51 ; capable of using delicate and 
intricate machinery, 54 ; its 
bank money, 175-7 ; panics, 188- 
9, 195-6; "no-rent" lands, 
213n ; rents, 217, 224 ; increase 
of population, 317-8; its usury 
laws. 338 ; its banking agencies, 
346, 352-3 ; wages, compared 
with those of England, 380, 
471-6 ; encouragement to immi- 
gration, 383-4 ; management of 
public lands, 431 ; considered 
with reference to the question 
of protection, 468-76 

Usury and usury laws, 336-46 

Utility, how related to value, 85- 
87 ; useful, in economics, does 
not mean beneficial, 87 ; final, 
[See Final Utility]. 

Value : related to wealth as attri- 
bute to substance, 5; defined, 
ihicl. ; relation to price, 85, 135-6 ; 
to utility, 85-6 ; is it a momentary 
phenomenon ? 88-9 ; how related 
to laboi-, 89-91 ; value is gov- 
erned by the relation of demand 
and supply, 93-100 ; the value of 
money, 132-3, 166-7 

Voluntary contributions, [See Con- 
tributions] 

Wage fund theory, 266n, 267n, 377- 
84 

Wages : as a share of the product 
of industry 203 ; are not dimin- 
ished by the sums received by 
the landlord class as rent,213-4 ; 
or by the sums received by the 
employing class as profits, 254-5; 
the law of wages. Chap. 5, Part 
IV; wages influenced by public 
opinion, 281-4 ; recapitulation, 
284-5 ; the doctrine of the wage 
fund, 377-84 ; wages how influ- 
enced by poor relief, 419-24 ; 
why wages are high in new coun- 
tries, 470-6 

Walker, Amasa : the theory of 
bank money, 180 ; co-operation, 
355n 

Warren, W. F. : voluntary contri- 
butions to the State, 424-5 

Waste of materials (avoidable) au 



490 



INDEX. 



"Waste of materials, ^io.. {Continued) 
important element in production, 
53, 55 

Waste of soil : its relation to rent, 
205-6 

Water privileges, rent of, 325-6 

"Wealth : the subject matter of poli- 
tical economy, 1-3 ; definition, 
3-5 ; relation of wealth to value, 
5 ; see also, throughout, capital; 
[with reference to taxation] 
442-3 ; 456-7 

"Weathering, so-called, as a means 
of renewing the soil subject to 
culture, 43-4 

Welfare, human, not the subject 
matter of political economy, 6-7 

"Wells, D. A. : exemption in taxa- 
tion is confiscation, 449 ; diffu- 
sion of taxes, 459 

Whately, Richard : popular preju- 
dices aroused by political econ- 
omy, 29 ; substitutes the term 



"Whatelj"", Richard {Continued) 
catallactics for political econ- 
omy, 31 ; producer's profits a 
species of the same genus as 
rent, 247 

"Whewell, William : his definition 
of science. 18 

"Wife, the, relation to the sub- 
sistence of the family, 301-3 

"William III, of England, dissipates 
the estates of the crown, 480n 

"Wilson, Dr. , on usury, 337 

"Wilson, James: depreciation not a 
necessary result of inconverti- 
bility of paper money, 168n ; the 
theory of bank money, 178 

"Wolowski, Louis: no paper money 
in Poland, 160 

"Workhouse test of pauperism, 
419-24 

Young, Arthur: "the magic of 
propertj^" 55 ; expenditure as the 
basis of taxation, 444. 



616 .«|i 



